In Yes Bank Limited & Anr. v. Axis Trustee Services Limited & Ors. (Civil Appeal No. 3182 of 2025 and connected matters, judgment dated 15 October 2026), the Supreme Court dismissed the appeals and upheld the Bombay High Court’s decision setting aside the write-down of Yes Bank’s Basel III-compliant Additional Tier 1 (“AT-1”) Bonds. The Court held that the Administrator could not write down the bonds contrary to the final Reconstruction Scheme or exercise a regulatory power vested in the Reserve Bank of India (“RBI”).

BACKGROUND
Yes Bank issued AT-1 Bonds worth Rs. 3,000 crores in December 2016 and Rs. 5,415 crore in October 2017. Following a steep deterioration in Yes Bank’s financial position, the Central Government imposed a moratorium on 5 March 2020, and the RBI appointed an Administrator. A draft reconstruction scheme published on 6 March 2020 expressly provided for the AT-1 Bonds to be permanently written down in full. However, the final Yes Bank Limited Reconstruction Scheme, notified on 13 March 2020, omitted that clause. On 14 March 2020, the Administrator nevertheless ordered a full write-down of the Rs. 8,415 crore AT-1 Bonds. Therefore, the trustee and bondholders challenged the action, and the Bombay High Court set it aside.

CONTENTIONS OF THE PARTIES
The appellants, including Yes Bank, the RBI and the Union of India, contended that the Administrator was empowered under Section 36ACA of the Banking Regulation Act, 1949 (“Banking Regulation Act”), the RBI’s Master Circular on Basel III Capital Regulations and the Information Memorandum to write down the bonds. They argued that invocation of Section 45 of the Banking Regulation Act triggered the point of non-viability and that the write-down, followed by SBI’s infusion of capital, was necessary to revive Yes Bank. They also argued that the reconstruction process continued after notification of the Scheme.

The respondents contended that the final Reconstruction Scheme deliberately omitted the draft provision for writing down the bonds. They argued that the Administrator could not write down the bonds after the Scheme came into force and that, under the Master Circular, the relevant action had to be taken before reconstruction. They further submitted that the power to determine the write-down at the point of non-viability belonged to the RBI, not the Administrator.

COURT’S FINDINGS
The Court held that the omission of the write-down clause from the final Reconstruction Scheme reflected a conscious decision not to deal with the bonds through the Scheme. The Administrator could not reverse that decision. A general clause preserving existing instruments did not confer a specific power to write down the bonds; the action was therefore ultra vires the Master Circular read with the Reconstruction Scheme.

The Court further held that the phrase “before reconstitution” in the Master Circular meant before the Reconstruction Scheme came into force, and not at any time while the Scheme’s effects continued. Once the point of non-viability was triggered, the RBI was required to determine the treatment of the bonds. The Administrator, whose statutory role was to act as a substitute for the Board of Directors, could not assume the RBI’s regulatory power. The Court observed that financial necessity could not excuse non-compliance with the prescribed procedure. It accordingly dismissed the appeals and clarified that its observations would not influence other pending proceedings.

MHCO COMMENT
The judgment reinforces that regulatory and administrative powers must be exercised strictly within the limits prescribed by statute and the applicable regulatory framework. The commercial necessity of rescuing a bank cannot override the authority, timing and procedure mandated by law.

The decision is also significant for the distinction it draws between the Administrator’s powers as a substitute for the Board of Directors and the RBI’s independent regulatory powers. The Administrator cannot assume a function specifically entrusted to the RBI. Further, a general provision preserving existing contracts cannot be used to imply a specific power that the final Reconstruction Scheme has omitted.

For market participants and financial institutions, the judgment highlights the importance of consistency between a reconstruction scheme, the RBI’s capital regulations and the terms of the relevant bond documentation. It also draws attention to investor-protection concerns surrounding the sale of complex, high-risk capital instruments to retail investors.

Date: 19 October 2026

By:

• Mr.  Bhushan Shah, Partner
• Ms. Sayali Kshirsagar, Associate
• Mr. Abhishek Nair, Associate

Disclaimer: This legal update is intended for general information purposes only and does not constitute legal advice. Readers are advised to seek specific legal advice before acting upon any information contained herein.

This update was released on 20 Oct 2026.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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