New Delhi: The Supreme Court delivered a significant ruling in the ₹8,415 crore Additional Tier-1 (AT-1) bond case involving Yes Bank on October 15, 2026, upholding the Bombay High Court judgment that had set aside the decision to write down the bank’s AT-1 bonds in March 2020. The Supreme Court dismissed appeals filed by Yes Bank, the Reserve Bank of India (RBI) and the Central Government. However, the process and timeline for any payments to investors will depend on further proceedings and implementation of the ruling.
On the day of the verdict, Yes Bank shares witnessed a sharp decline in the stock market. The bank’s stock fell 14.53% to close at ₹18.12. Thus, while bondholders received legal relief, shareholders faced losses in the market. The contrasting impact reflects the different interests of bondholders and equity shareholders.
What Are the ₹8,415 Crore AT-1 Bonds?
Yes Bank had issued AT-1 bonds worth ₹3,000 crore in December 2016 and another ₹5,415 crore in October 2017, taking the total to ₹8,415 crore. Axis Trustee Services Limited represented the interests of the bondholders.
AT-1 bonds are a means for banks to raise capital. They carry higher risks than conventional bonds. If a bank faces severe financial stress or certain regulatory conditions are triggered, the value of these bonds can be reduced. Under specific circumstances, investors may even lose their entire investment. The mechanism is designed to help banks absorb losses and maintain capital during periods of financial distress.
In its judgment, the Supreme Court also explained the distinction between “write-down” and “write-off.” A write-down refers to reducing the value of a bond, while a write-off may mean eliminating the amount entirely. The court used the term “write-down” as mentioned in the administrator’s letter dated March 14, 2020.
How Did the Dispute Begin in March 2020?
Yes Bank’s financial position had deteriorated significantly by early 2020. On March 5, 2020, the Central Government imposed a moratorium on the bank, which was scheduled to remain in force until April 3. Around the same time, the RBI removed the bank’s board and appointed an administrator. A reconstruction plan was subsequently prepared to stabilise the lender.
The initial reconstruction plan, released on March 6, proposed writing down the entire value of the AT-1 bonds. Bondholders objected to the proposal. Axis Trustee suggested that the bonds should be converted into shares instead of being extinguished. Indiabulls Housing Finance also opposed the proposal and sought protection of the bondholders’ interests.
On March 9, Axis Trustee approached the Bombay High Court, seeking an opportunity to present its case before the plan was implemented. It also wrote to the RBI, proposing the conversion of the bonds into equity shares.
An RBI note reportedly stated that three-fourths of the bondholders had supported a proposal to convert the bonds into shares. Under the proposal, each bond with a face value of ₹10 lakh would be exchanged for 19,551 shares with a face value of ₹2 each.
However, the final reconstruction scheme issued on March 13, 2020, included neither a provision for writing down the bonds nor a mechanism for converting them into shares. Despite this, the administrator wrote down the entire value of both bond issuances on March 14. The action was subsequently challenged in court.
Why Did the Supreme Court Question the Administrator’s Authority?
The bank and the government argued that the bonds could be written down before reconstruction and that the restructuring process could take several years. The Supreme Court rejected this interpretation. According to the court, the phrase “before reconstruction” meant before the scheme came into effect, not at any point after its implementation.
The court also referred to the case of Lakshmi Vilas Bank, where bonds worth ₹318.20 crore were written down one day before its reconstruction scheme came into force. The Supreme Court noted that no satisfactory explanation had been provided for why a similar approach was not followed in Yes Bank’s case.
The judgment clarified that an administrator may exercise the functions of a bank’s board but cannot assume the RBI’s regulatory powers. If the “Point of Non-Viability” trigger is activated because a bank’s continued viability is in serious doubt, the decision on writing down AT-1 bonds rests with the RBI. In this case, the action was taken by the administrator.
Capital Crisis and Investor Protection Under Scrutiny
According to the Supreme Court, Yes Bank’s Common Equity Tier-1 (CET1) capital ratio stood at just 0.6% on December 31, 2019, against a capital requirement of 7.375% cited in the judgment. The bank had options to raise capital and take action concerning the bonds. However, the court emphasised that a measure being necessary does not automatically make it legally valid.
The court also expressed concern over the sale of AT-1 bonds to individual investors. Given the high-risk nature of these instruments, investors must receive clear information about potential losses, and their sale must be subject to appropriate oversight.
The Supreme Court clarified that annual coupon payments due on the bonds should be made in accordance with the bond documents. The court’s observations are limited to the appeals before it, and other pending proceedings may continue on the basis of their own facts.
