RBI to appeal against Bombay High Court order on Yes Bank’s AT-1 bonds

This High Court on Friday granted six weeks time to Yes Bank to file its appeal against the order in the Supreme Court.

“RBI is of the view that the writ petition is not maintainable and the order may have a major sectoral impact. The central bank is also of the view that the administrator had all the powers of the board to write off the bonds and hence, the court’s argument is not tenable,” said two officials aware of the matter, requesting anonymity. said one of the

The RBI approved the March 2020 decision of the Yes Bank administrator to write off AT-I bonds as part of a restructuring plan to protect bank depositors from losing their savings.

This decision was later challenged in court by a group of disgruntled bondholders.

AT-I bonds are unsecured bonds with no maturity date and are used by banks to augment their capital base and comply with Basel III norms.

An email sent to an RBI spokesperson did not elicit any response.

The high court, in its order, noted that the RBI-appointed administrator violated its powers to write off the AT-1 bonds as the decision was taken after the final restructuring plan was notified on March 13, 2020.

It said the scheme came into force on March 13, 2020 and the bank was reconstructed on the same day.

The court ruled that AT-I bonds could only be written down before the bank’s reconstruction. It also pointed out that the government-approved reconstruction scheme for Yes Bank did not include a clause for writing off these bonds.

However, the court did not consider whether write-off of AT-1 bonds was necessary, but only looked at the decision-making process.

Yes Bank argued that Section 36AC of the RBI Act allows the administrator to exercise the powers of the board until the new board takes over.

“The court order is based on two grounds – the date of reconstruction and that the administrator did not have power after the scheme was notified. As far as the first premise is concerned, it is incorrect to say that the date of reconstruction may be the same as the date of notification as it does not take into account the period of implementation of the reconstruction. The second reason it is contrary to the RBI Act is that merely because the scheme was notified, the administrator cannot exercise any power,” said Rohan Dakshini, a lawyer representing Yes Bank and a partner at law firm Rashmikant & Partners. Told.

“The observation of the court on the removal of the provision for write-down from the final scheme does not affect the exercise of its contractual rights by the bank,” he added.

Following the Bombay High Court’s decision, the bondholders of Lakshmi Vilas Bank also plan to seek an urgent hearing in the Madras High Court against the RBI’s decision to write off Tier-II bonds. 320 crores, as even the approved scheme of merger of the government does not mention write-down for these bonds.