Yes Bank | Administrator Cannot Write Down AT-1 Bonds In Absence Of Clause In Reconstruction Scheme; PONV Power Vests In RBI: Supreme Court

"Instead, it happened to be the Administrator who, in our opinion, acted under an erroneous impression or mistaken belief that reconstruction of YES BANK by virtue of the Reconstruction Scheme notwithstanding, he retained the authority to write down the AT-1 Bonds. This, in our opinion, was an impermissible act and ultra vires the Master Circular read with the Reconstruction Scheme." Supreme Court, in a significant ruling delivered on October 15, 2026, held that an Administrator appointed under Section 36ACA of the Banking Regulation Act, 1949 has no statutory authority to write down Additional Tier 1 (AT-1) Bonds once the Central Government has consciously omitted the write-down clause from the final Reconstruction Scheme notified under Section 45 of the Act.

 A bench comprising Justice Dipankar Datta and Justice Augustine George Masih affirmed the Bombay High Court's judgment quashing the write-down of AT-1 bonds worth Rs. 8,415 crore issued by Yes Bank Limited, observing that "a power not specifically conferred cannot be implicitly vested through a general, omnibus savings clause."

The dispute arose after the Reserve Bank of India (RBI) superseded Yes Bank's board in March 2020 and placed a Draft Reconstruction Scheme proposing to write down its Basel III compliant AT-1 bonds. Following objections and stakeholders' representations, the Central Government notified the final 'Yes Bank Limited Reconstruction Scheme, 2020' on March 13, 2020, omitting the write-down clause entirely. Despite this conscious omission, the RBI-appointed Administrator proceeded to write down the AT-1 bonds on March 14, 2020, prompting bondholders and trustees to challenge the decision before the Bombay High Court, which set aside the Administrator's action.

The primary questions before the Supreme Court were whether the validity of the Administrator's action had to be tested based on the state of affairs existing on the date of the decision or subsequent financial recovery; whether the Administrator could write down the AT-1 Bonds in the absence of an express enabling clause in the final Reconstruction Scheme; and whether such action was in consonance with the RBI Master Circular on Basel III Capital Regulations and the terms of the Information Memoranda.

Legality Of Administrative Action Must Be Judged On The Date It Was Taken

Addressing the preliminary contention that Yes Bank had since turned profitable after capital infusion by the State Bank of India, the bench refused to dispose of the dispute merely on account of subsequent developments. The court reiterated the settled legal principle that an administrative action must be tested strictly on the anvil of the facts and the law as they stood on the date the decision was taken.

Invoking its previous ruling in Nawabkhan Abbaskhan v. State of Gujarat (1974), the bench underscored that subsequent profitability, change of circumstances, or inaction cannot retroactively cure an otherwise ultra vires act. The court also took note of Yash Deep Trexim Private Limited v. Namokar Vinimay Pvt. Ltd. (2014) while emphasizing that matters of fiscal significance require definitive legal resolution.

"Subsequent actions, inaction, or change in circumstances, that affect the impugned decision cannot and ought not to have an effect on the outcome of the lis raised in the writ petition."

Government's Deletion Of Write-Down Clause Cannot Be Undone By Administrator

Scrutinizing the comparative clauses of the Draft Scheme and the final Reconstruction Scheme notified under Section 45 of the Banking Regulation Act, 1949, the Court noted a conspicuous absence: the proposed clause providing that AT-1 instruments would stand written down permanently in full had been deliberately dropped by the Central Government. Internal file notes from the Department of Financial Services revealed that representations by institutional stakeholders like Axis Trustee Services Limited had been considered, and conversion into equity was actively contemplated before the write-down clause was excised altogether.

The bench held that when the Central Government consciously decided not to incorporate any clause affecting the bonds, it gave its definitive imprimatur to leave them untouched. The Administrator could not execute a complete volte-face and dismantle the statutory deliberative process by exercising an unwritten authority.

"If it were the intention of the Central Government to allow the Administrator to write down the AT-1 Bonds after publication of the Reconstruction Scheme even after exclusion of the relevant clause from the Draft Scheme, that would have made it susceptible to face the criticism of acting clandestinely and the accusation of committing an act amounting to a fraud on public."

Omnibus Savings Clause Does Not Impart Inherent Power To Extinguish Capital

The Court firmly rejected the argument advanced on behalf of Yes Bank and the Administrator that Clause 6(1) of the Reconstruction Scheme, which preserved the efficacy of existing contracts and bonds, implicitly saved the Administrator’s residuary power to write down the instruments.

The bench held that a specific and distinct procedural framework is prescribed under the RBI Master Circular and the Information Memoranda for the write-down of AT-1 bonds. General savings provisions cannot be stretched to manufacture a substantive power that was intentionally excluded from the final statutory scheme.

"It is a settled legal principle that a power not specifically conferred cannot be implicitly vested through a general, omnibus savings clause. To that extent, we rule against YES BANK and the Administrator."

Write-Down 'Before Reconstitution' Means Prior To Scheme Taking Effect

Interpreting Clause 2.15 of Annex 16 of the Master Circular—which dictates that AT-1 instruments will be fully converted or written down permanently "before amalgamation / reconstitution"—the bench dismantled the appellants' submission that reconstruction is a continuous three-year process during which bonds can be extinguished at any stage.

The Court clarified that the preposition "before" can only mean before the Reconstruction Scheme comes into force. Drawing a comparison with the amalgamation of Lakshmi Vilas Bank Limited with DBS Bank India Limited, where Tier 2 bonds were written down a day prior to the scheme taking effect, the bench observed that reading the clause as urged by the bank would yield absurd results and keep investors under perpetual uncertainty.

"To read the clause in its present form in the manner urged... would not only defeat the very object of the AT-1 Bonds but would produce an inherent absurdity, leaving investors to wonder at what point the guillotine blade might fall."

"The trigger viz. the point of non-viability is deemed to have been reached when the relevant authorities decide to reconstruct YES BANK, and in such an event the AT-1 Bonds ought to have been written down before the initial step of the reconstitution/reconstruction happened, i.e., the Reconstruction Scheme came into force."

Power To Trigger Write-Down At Point Of Non-Viability Lies Solely With RBI

Analyzing clauses 56 and 57 of the Information Memoranda alongside Annex 16 of the Master Circular, the Court explained the two statutory triggers for loss absorbency: the Pre-Specified Trigger Level (when the Common Equity Tier 1 ratio breaches the minimum threshold) and the Point of Non-Viability (PONV). While the bank has the discretion to convert or write down at the pre-specified trigger, the discretion shifts exclusively to the RBI once PONV is reached or deemed to be triggered.

The Court highlighted that the Administrator, appointed under Section 36ACA of the Banking Regulation Act, 1949, merely substitutes the Board of Directors under Section 36ACA(4)(b) to run the affairs of the banking company. The Administrator cannot usurp the statutory regulatory mantle of the RBI to determine and execute a write-down at PONV.

"The Administrator could not have assumed the regulatory role of the RBI and exercise a power which it did not have at all."

Regulatory Lapses And Mis-Selling To Retail Investors Censured

The bench voiced deep concern over the conduct of the "triumvirate" of the RBI, the Administrator, and Yes Bank, observing that the RBI acted as a "mere bystander" while Yes Bank's Common Equity Tier 1 ratio plummeted to an astonishing 0.6% against the regulatory threshold of 7.375%.

The Court also took serious judicial notice of Yes Bank actively offering high-risk AT-1 bonds directly to retail individual investors through internal wealth advisors in blatant violation of the Master Circular, which restricts these volatile instruments to institutional investors. The bench noted that individual investors should not be made to suffer at the receiving end of administrative lapses and regulatory apathy.

"A tighter scrutiny ought to have been exercised before luring individual investors to such high-risk securities."

Dismissing all appeals preferred by Yes Bank, the Reserve Bank of India, and the Union of India, the Supreme Court upheld the Bombay High Court judgment setting aside the Administrator's write-down order. The Court clarified that annual coupon payments on the AT-1 bonds must be paid strictly in terms of the Information Memoranda, leaving the underlying criminal prosecutions against former bank officials uninfluenced by these findings.

Date of Decision: October 15, 2026