Supreme Court Voids Yes Bank Bond Write-Down, Says Administrator Overstepped RBI Powers
NEW DELHI, October 15, 2026: The Supreme Court has refused to save the write-down of Yes Bank's Additional Tier 1 (AT-1) bonds, holding that the Administrator appointed by the Reserve Bank of India had no power to wipe them out. A Bench of Justice Dipankar Datta and Justice Augustine George Masih dismissed the appeals of Yes Bank, the Reserve Bank of India and the Union of India against the Bombay High Court's judgment of 20 January 2023. The Court found that the Central Government had deliberately dropped the write-down clause from the final Reconstruction Scheme, and that the Administrator then did what only the RBI could decide. The judgment is reported as Yes Bank Limited and Another v. Axis Trustee Services Limited and Others (2026 INSC 1132).
Case at a Glance
Case: Yes Bank Limited and Another v. Axis Trustee Services Limited and Others
Citation: 2026 INSC 1132, Civil Appeal No. 3182 of 2025, with Civil Appeal Nos. 3183-3192, 3193-3202 and 3203-3212 of 2025 (appeals by the Reserve Bank of India, Yes Bank and the Union of India)
Bench: Justice Dipankar Datta (author) and Justice Augustine George Masih
Challenged order: Bombay High Court judgment and order dated 20 January 2023, which set aside the Administrator's write-down of 14 March 2020
Date of judgment: October 15, 2026
Outcome: Appeals dismissed, interim orders vacated, annual coupon payments to remain unaffected, parties to bear their own costs
Background of the Dispute
Yes Bank issued Basel III compliant AT-1 bonds as non-convertible debentures: Rs 3,000 crore on 23 December 2016 and Rs 5,415 crore on 18 October 2017, with Axis Trustee Services as trustee. When the bank's finances collapsed, the Central Government imposed a moratorium on 5 March 2020 under section 45 of the Banking Regulation Act, 1949, and the RBI appointed an Administrator under section 36ACA. A Draft Scheme of reconstruction was published the next day. The final Yes Bank Limited Reconstruction Scheme, 2020 was notified on 13 March 2020. On 14 March 2020 the Administrator wrote down the AT-1 bonds in full. Bondholders challenged that act before the Bombay High Court, which set it aside.
Timeline
23.12.2016 and 18.10.2017: Rs 3,000 crore and Rs 5,415 crore of AT-1 bonds issued
04.03.2020: Axis Trustee writes to Yes Bank, anxious about bondholders' interests
05.03.2020: moratorium under section 45 of the Banking Regulation Act and appointment of Administrator under section 36ACA
06.03.2020: Draft Scheme published, with a clause writing down AT-1 bonds
13.03.2020: final Reconstruction Scheme notified, with that clause omitted
14.03.2020: Administrator writes down the AT-1 bonds
20.01.2023: Bombay High Court sets aside the write-down
15.10.2026: Supreme Court dismisses the appeals
Who Argued What
For the appellants: Solicitor General Tushar Mehta appeared for the RBI and the State Bank of India, Senior Advocate Shyam Divan for Yes Bank and Senior Advocate Balbir Singh for the Administrator. They argued that striking down the write-down would trigger a financial avalanche for the banking system, that the Reconstruction Scheme and the Master Circular permitted the write-down, and that reconstruction was a continuing process.
For the respondents: Senior Advocates C.A. Sundaram, Dr. Abhishek Manu Singhvi and Neeraj Kishan Kaul, other counsel, and party-in-person L.V. Srinivasan, who argued that the Scheme dropped the write-down clause and that the Administrator had no authority to write the bonds down.
Issue A: Do Later Events Make the Dispute Academic?
The appellants said that striking down the write-down would unravel the reconstruction. The respondents said Yes Bank has since recovered and everyone gained, including the State Bank of India, which sold its stake at a profit. The Court refused to end the matter on that basis. It held that an administrative action must be tested as it stood on the date it was taken, in light of the law then, and that later events cannot change the outcome. It therefore examined the position as on 14 March 2020.
Issue B: The Clause That Vanished
Clause 6 of the Draft Scheme said AT-1 instruments would be written down permanently and in full. The final Reconstruction Scheme omitted that paragraph. The Court relied on an internal RBI note, obtained under the Right to Information Act, which recorded that the RBI itself said the extant guidelines and bond conditions applied and that the draft provision "may be dropped". It also recorded that a majority of bondholders had agreed to conversion into equity, a proposal the RBI accepted and incorporated.
We have good reasons to infer that the Central Government had taken a conscious decision to exclude the clause permitting writing down of the AT-1 Bonds from the Reconstruction Scheme.
The Court said the Administrator "acted under an erroneous impression or mistaken belief" that he retained the authority to write the bonds down, and that this was impermissible and ultra vires the Master Circular read with the Reconstruction Scheme. A general savings clause could not give that power: a power not specifically conferred cannot be implicitly vested through a general, omnibus savings clause.
Only the RBI Could Pull the Trigger
Even apart from the Scheme, the Court examined the Master Circular and the Information Memoranda. It explained that the Pre-Specified Trigger Level (a CET1 ratio below 6.125% of risk weighted assets) gave Yes Bank itself the option to convert or write down. Yes Bank's CET1 ratio was 0.6% as on 31 December 2019 against a requirement of 7.375%, yet Yes Bank chose not to act. The second trigger, the Point of Non-Viability, is for the RBI to determine. Once it is reached the bank no longer has discretion, and it is the RBI that must write down the bonds.
The Administrator could not have assumed the regulatory role of the RBI and exercise a power which it did not have at all.
The Court held that an Administrator under section 36ACA must act within the four corners of the powers conferred by the statute and that anything beyond them is wholly illegal and void. The RBI had not only chosen not to exercise the power but had signalled the opposite by dropping the clause. The Court also rejected the argument that the phrase "before reconstitution" in clause 2.15 of Annex 16 meant any time during the three years of the Scheme. "Before" can only mean before the Scheme takes effect, and the clause would have said "before reconstitution is complete" had that been intended.
The Lakshmi Vilas Bank Comparison
The Court noted that when Lakshmi Vilas Bank was amalgamated with DBS Bank India, bonds worth Rs 318.20 crore were written down on 26 November 2020, a day before the scheme came into force. Why the same course was not adopted for Yes Bank was left unexplained.
Sharp Words for the Triumvirate and a Warning on Mis-selling
The Bench called the conduct of the RBI, the Administrator and Yes Bank in dealing with the bonds, "to put it mildly, questionable". It said the RBI was a mere bystander while the CET1 ratio fell to 0.6%, and that it would be highly unfair to leave investors at the receiving end of administrative lapses. The Court also found that Yes Bank not only permitted but actively offered these high-risk instruments to individual investors, in violation of the Master Circular, which allows them only for institutional investors.
What the Court Did Not Do
It did not hold that the AT-1 bonds could never be written down. The question was the manner in which it was done and who had the power.
It did not decide the wider consequences for the banking system, nor spell out any new relief for bondholders. It dismissed the appeals and vacated interim orders.
It did not allow its observations to influence other cases. Pending proceedings are to be taken to their logical conclusion uninfluenced by them.
It did not disturb coupon payments. The annual coupon must be paid in terms of the Information Memoranda, and the parties bear their own costs.
What It Means Going Forward
For Regulators and Administrators
Powers must be exercised by the authority that holds them. An Administrator cannot step into the shoes of the RBI on bond write-downs.
For Investors and Trustees
Consultation records and scheme drafts matter. Deleted clauses in a final scheme can show a deliberate decision that protects investors.
For Banks Issuing AT-1 Instruments
Comply with the Master Circular on who may be offered these high-risk instruments, because mis-selling to individual investors will draw judicial scrutiny.
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FAQs
What did the Supreme Court decide in the Yes Bank AT-1 bonds case?
It dismissed the appeals of Yes Bank, the RBI and the Union of India and upheld the Bombay High Court, holding that the Administrator could not write down the AT-1 bonds.
Why was the write-down held invalid?
The Central Government had deleted the write-down clause from the final Reconstruction Scheme, and the Point of Non-Viability trigger belonged to the RBI, not the Administrator.
How much money was involved?
Yes Bank had issued Rs 3,000 crore of AT-1 bonds in 2016 and Rs 5,415 crore in 2017, a total of Rs 8,415 crore.
Does this mean AT-1 bonds can never be written down?
No. The Court said the question was not whether the bonds could have been written down but the manner in which it was done, outside the Master Circular and the Information Memoranda.
Will bondholders still receive their coupon payments?
The Court directed that payment of the annual coupon remains unaffected and must be made in terms of the Information Memoranda.
Keywords
Supreme Court Yes Bank judgment, AT-1 bonds write down, Additional Tier 1 bonds, Axis Trustee Services, RBI Master Circular Basel III, section 36ACA Administrator, Yes Bank Reconstruction Scheme 2020, point of non-viability, 2026 INSC 1132, Banking Regulation Act section 45
Read the judgment: Download the Supreme Court judgment (PDF) | Google Drive copy
Case Title: Yes Bank Limited and Another v. Axis Trustee Services Limited and Others
Case No.: Civil Appeal No. 3182 of 2025 with connected appeals
Citation: 2026 INSC 1132
Bench: Justice Dipankar Datta and Justice Augustine George Masih
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