Background
On 15 October 2026, the Supreme Court dismissed appeals filed by YES Bank, the Reserve Bank of India (RBI) and the Union of India, upholding the Bombay High Court’s judgment dated 20 January 2023, which quashed YES Bank’s write-off of Additional Tier 1 (AT-1) bonds worth ₹8,415 crore.
In March 2020, YES Bank faced a severe financial crisis and underwent reconstruction under Section 45 of the Banking Regulation Act, 1949. As part of the process, the bank permanently wrote down AT-1 bonds worth ₹8,415 crore, extinguishing the investments of bondholders.
The proposed reconstruction scheme initially contained a provision for writing down these bonds. However, this provision was omitted from the final scheme notified by the Central Government on 13 March 2020. Despite this omission, the Administrator directed the permanent write-off on 14 March 2020. Bondholders challenged the decision before the Bombay High Court, which ruled in their favour.
What Are AT-1 Bonds?
Additional Tier 1 bonds are financial instruments issued by banks to strengthen their regulatory capital. They carry higher risks than conventional debt instruments because they can absorb losses through mechanisms such as permanent write-down or conversion into equity when specified regulatory triggers arise.
However, the existence of such a loss-absorption mechanism does not eliminate the requirement to comply with the applicable regulatory framework.
Legal Provisions Involved
1. Section 45, Banking Regulation Act, 1949: Provides the statutory framework for the reconstruction of banking companies. The dispute concerned whether the bond write-off was authorised under the final reconstruction scheme.
2. Section 36ACA, Banking Regulation Act, 1949: Deals with the supersession of a banking company’s Board of Directors and appointment of an Administrator in specified circumstances. The Administrator’s powers must remain within the governing statutory framework.
3. RBI’s Basel III Capital Regulations: Govern the loss-absorption features of AT-1 instruments, including the applicable point-of-non-viability provisions and write-down mechanism.
4. Article 226, Constitution of India: Empowers High Courts to review the legality of administrative action through writ jurisdiction.
Supreme Court’s Decision
The Supreme Court declined to interfere with the Bombay High Court’s judgment and dismissed the appeals. The dispute centred on whether the Administrator possessed the authority to write off the bonds after the final reconstruction scheme omitted the relevant provision, and whether the action complied with RBI regulations and the bond documents.
The ruling reinforces the principle that an authority cannot exceed its legally conferred powers merely because its action is intended to achieve a legitimate regulatory objective.
Legal Significance
The judgment is important for banking and commercial law for three reasons:
Limits on administrative power: Regulatory action must have a valid legal basis.
Importance of the final scheme: A provision omitted from the final notified scheme cannot simply be treated as operative because it appeared in an earlier draft.
Investor protection: Financial instruments remain subject to their contractual terms and applicable regulations, and disputes over their enforcement are open to judicial scrutiny.
Conclusion
The YES Bank AT-1 bond dispute demonstrates that financial stability and investor protection must operate within the boundaries of law. The Supreme Court’s decision highlights the importance of statutory authority, regulatory compliance and judicial review in banking reconstruction.
Key takeaway: A financial emergency does not give an authority unlimited power to disregard the governing statutory framework.
Published by Legoz Lex | Legal News & Analysis