Supreme Court upholds quashing of Yes Bank's Rs 8,514-crore AT-1 bond write-down: the Administrator had no power the Board and RBI never exercised

The Supreme Court dismissed appeals by Yes Bank Limited, the Reserve Bank of India (RBI) and the Union of India against a Bombay High Court judgment that had quashed the write-down of Yes Bank's Additional Tier-I (AT-1) Bonds, worth over Rs. 8,514 crore, during the bank's 2020 reconstruction. Under the RBI's Master Circular on Basel III Capital Regulations, AT-1 bonds can be written down only on one of two triggers: the bank's own Board, or the RBI. Yes Bank's Board never exercised this power, and the Reconstruction Scheme notified by the Central Government on 13 March 2020 had deliberately dropped the write-down clause present in the earlier draft scheme — meaning the RBI, too, chose not to trigger it. Despite this, the Administrator appointed under Section 36ACA of the Banking Regulation Act, 1949 to run the bank during the moratorium wrote down the bonds anyway, on 14 March 2020.

The Court held that an Administrator is a substitute for the Board, bound strictly within the powers the statute confers, and cannot assume the RBI's distinct regulatory power to trigger a write-down. The simultaneous "bail-in" of bondholders and "bail-out" by State Bank of India's equity infusion may both have been necessary to revive the bank, but necessity could not justify writing down the bonds by a route the Master Circular did not permit. The write-down was held void; coupon payments due to bondholders remain unaffected.