Clauses in Information Brochure based on statutory Master Circular is enforceable; Bombay High Court sets aside Administrator decision to write down AT-1 bonds once Yes Bank stood reconstituted

Bombay High Court: In a petition filed challenging the communication dated 14-03-2020 under which the Administrator of the Yes Bank Ltd., informed the (Bombay Stock Exchange) BSE Limited and National Stock Exchange, of the decision to write off the Additional Tier 1 Debenture bonds, a division bench of S V Gangapurwala CJ. and S M Modak, JJ., sets aside the decision taken by the administrator appointed by the Reserve Bank of India, to write off Additional Tier 1 (AT-1) bonds because as per Clause 57 of the Information Memorandum along with the Final Reconstruction Scheme, the administrator could not have exercised his powers to write down bonds after reconstitution of the bank.

Yes Bank Ltd., is a banking company registered under the Companies Act, 1956 and for the purpose of augmenting its Additional Tier 1 Capital, Yes Bank decided to issue certain Basel III Compliant Additional Tier 1 Capital Bonds in the form of nonconvertible debentures on a private placement basis vide Debenture Trustee Agreement dated 22-12-2016, Axis Bank, the petitioner was appointed as the Debenture trustee to act on behalf of the debenture holders. Thus, Yes Bank floated an Information memorandum for the private placement of Basel III Compliant Additional Tier 1 Capital Bonds in the form of non-convertible debentures.

Pursuant to this, Yes Bank executed a Debenture Trust Deed with the petitioner, pursuant to which the Yes Bank issued debentures over a period. However, due to certain reasons, the financial position of the Yes bank deteriorated, and the Central Government imposed a moratorium and issued further directions to not grant or renew any further loans, make any investment, dispose of any properties or assets, enter any compromises etc., except as provided under the said directive.

The RBI appointed Administrator exercising its powers under section 36ACA of the Act of 1949 to exercise all the powers of the Board of Directors until the Board of Directors of the banking company is reconstituted. A draft reconstruction scheme was placed by RBI for objections which were discussed, and incorporated, and the Final Yes Bank Reconstruction Scheme, 2020 was notified on 13-03-2020. The Administrator informed BSE and NSE of the decision to write down the Additional Tier 1 Debenture bonds by the impugned letter.

The issue under consideration is whether the decision-making process has been adhered to and whether it was within the competence of the Administrator to write down the AT-1 bonds in the facts and circumstances of the present case.

The Court noted that in the draft scheme, the provision was made for writing off all the AT-1 bonds, however, in the final scheme, the said clause was deleted. Thus, the final scheme dated 13-03-2020 did not contain the provisions for writing off the AT-1 bonds.

The Court in its 81-page order further noted that Clause 57 of the Information Brochure suggests that the written-down of AT-1 bonds could only be done before the bank is reconstructed. After the bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures. The Board of Directors was notified about the final scheme and a time period was given for the Board of Directors to take over from the Administrator, and for that purpose, the tenure of the Administrator extended to seven days from the date of reconstitution of the bank.

The Court concluded that, during this period, neither the Administrator could have taken such a policy decision to write down the AT-1 bonds nor had the RBI authorized him to do so. Thus, it was held that the Final Reconstruction Scheme also did not authorize the Administrator to write off the AT-1 bonds and the Administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on 13-03-2020.

[Axis Trustees Services Limited v. Union of India, 2023 SCC OnLine Bom 180, decided on 20-01-2023]


Advocates who appeared in this case :

Mr. Janak Dwarkadas, Sr. Adv. a/w. Dr. Birendra Saraf, Sr. Adv., Mr. Ankit Lohia, Mr. Sunil Tilokchandani, Mr. Sachin Chandarna and Mr. Vikram Trivedi, Ms. Pooja Batra, Ms. Neha Javeri, Ms. Nipa Ghosh i/b. Manilal Kher Ambalal & Co. for Petitioner in WP/785/2021. Mr. Dinyar Madon, Sr. Adv. a/w. Ms. Tanushree Kejriwal i/b. Parinam Law Associates for Petitioner in WPL/849/2020, WP/1518/2022. Mr. Dinyar Madon, Sr. Adv. a/w. Mr. Paras Parekh, Ms. Tanushree Kejriwal, Adv. Shuthara Swami, Mr. Ashish Venugopal, Mr. Abhineet Sharma, Adv. Shonan Bangera i/b. Parinam Law Associates for Petitioner for the Respondents in WP/6589/2021. Mr. Sharan Jagatiani, Sr. Adv. a/w. Ms. Apurva Manwani, Mr. B.Gopalkrishnan a/w. Mr. Nilesh Ghadge, Mr. Parikshit Desai, Mr. Ashish Dalal, Ms. Saloni Shah for Petitioner in WP/220/2021. Mr. Zal Andhyarujina a/w. Mr. Karan Bhide, Mr. Pradeep Bakhru, Mr Nikhil Gupta, Mr. Shreya Sancheti, Ms. Labdhi Mehta i/b. Wadia Ghandy & Co. for Petitioner in WP/100/2021. Mr. Shrijan Sinha a/w. Ms. Prerna Gandhi, Ms. Preet Chheda for Petitioner in WPL/1069/2021, WP/3324/2021, WPL/6589/2021. Mr. Pradeep Bakhru, Mr Nikhil Gupta, Ms. Labdhi Mehta i/b. Wadia Ghandy & Co. for Petitioner in WP/1997/2021. Mr. L.V.Srinivasan, Petitioner- in-person in WPL/1000 and 1001 OF 2020. Mr. Aspi Chinoy, Sr. Adv. a/w. Mr. Rohaan Cama, Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Nikita Mishra, Mr. Kyrus Modi, Mr. Aman Sadiwala i/b M/s. Rashmikant & Partners, for Respondents Nos. 3 in WP/1518/2020 for Respondent no.3 and 4 in WP/785/2021. Mr. Ravi Kadam, Sr. Adv. a/w. Mr. Ashish Kamat, Mr. Vivek Shetty, Mr. Nishant Upadhyay, Mr. Dhaval Vora, Mr. Akilesh Menezes, Mr. i/b AZB & Partners, for Respondent No. 2 -RBI. Mr. J.P.Sen, Sr. Adv. a/w. Mr. Rohaan Cama, Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Nikita Mishra, Kr. Kyrus Modi, Mr. Aman Sadiwala i/b M/s. Rashmikant & Partners for Respondents Nos. 3 and 4 in WP/100/2021 and Respondent no.4 in WPL/6589/2021. Mr. Vrushabh Vig i/b M/s. Crawford Bayley & Co. for Petitioner in WP/8068/2020. Mr. Sharad Bansal a/w. Mr. Kunal Parekh i/b. Dua Associates AOR for Res. No.11 in WP/3324/2021. Mr. Naushad Engineer a/w. Mr. Kunal Parekh i/b. Dua Associates AOR for Respondent no.11 in WPL/6589/2021. Mr. Kunal Parekh i/b. Dua Assocites AOR for Respondent no.15 in WPL/6589/2021. Mr. Abhiraj Arora, Mr. Shourya Tanay, Mr. Harshvardhan Nankani i/b. Economic Laws Practice for Respondent no.3 (SEBI) in WP/6589/2021. Ms. Kanksha Vyas i/b. Juris Link for Respondent no.12 in IA/535/2021 in WP/6589/2021. Mr. D.P.Singh a/w. Mr. Aditya Thakkar for Respondent no.1 UOI in WP/785/2021. Mr. Anubhav Ghosh a/w. Mr. Pranav Kamdar i/b. TRILEGAL for Respondent no.5. in WP/785/2021 for Respondent nos.7 & 16 in WPL/6589/2021, WPL/849/2020 Mr. Mihir Mody and Mr. Harshvardhan Melanta, Mr. Shreyas Pandlai i/b. M/s. K.Ashar & Co. For Respondent no.6. in WPL/6589/2021. Mr. Mayur Khandeparkar a/w. Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Nikita Mishra, Kr. Kyrus Modi, Mr. Aman Sadiwala i/b M/s. Rashmikant & Partners, for Respondents Nos. 4 in WP/3324/2021, Respondent no.3 in WPL/1001/2020, for Respondent no.3 and 4 in WP/220/2021 for Respondent no.3. in WPL/1000/2020 for Respondent no.4 in IA/189/2022 in WPL/1069/2022. Mr. Rohaan Cama a/w Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Nikita Mishra, Mr. Kyrus Modi, Mr. Aman Sadiwala i/b M/s. Rashmikant & Partners, for Respondent nos.3 & 4 in WP/1997/2021. Mr. Gautam Ankhad a/w. Mr. Hetal Thakore & Mr. Kunal Parekh i/b. Dua Assocites for Respondent no.15 in WPL/6589/2021. Ms. Chitra Rentala a/w. Mr. Pranay Kamdar, Ms. Sonal Singh i/b. TRILEGAL for Respondent no.5. in WP/785/2021 and WP/1518/2022, for Respondent no.7 & 16 in IA/535/2021 in WPL/6589/2021, WPL/849/2020. Ms. Khursheed Vajifdar i/b. Legasis Partners for Res. CDSL in WP/785/2021 AND WPL/6589/2020.


*Arunima Bose, Editorial Assistant has reported this brief.

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