Axis Trustee Threatens Legal Action Against Yes Bank Over AT1 Bonds

Axis Trustee Services Limited, acting as the trustee for Yes Bank's Additional Tier 1 (AT1) bonds, has issued a formal demand to the private sector lender to restore the bonds and complete all necessary corporate formalities within three days. Failure to comply will result in the trustee initiating contempt of court proceedings before the Supreme Court of India.

The dispute arises from Yes Bank’s decision in March 2020 to write off Rs 8,415 crore worth of AT1 bonds, a move later challenged by Axis Trustee. The trustee alleges that Yes Bank has deliberately ignored the Supreme Court's October 15 ruling, which upheld a Bombay High Court judgment invalidating the write-off. According to Axis Trustee, the bank has shown wilful disobedience of the court’s directive.

In response, Yes Bank acknowledged the communication from Axis Trustee and confirmed its awareness of the Supreme Court judgment. The bank stated it is carefully reviewing the court’s decision and its implications. It assured that it remains committed to acting within the legal framework and will take appropriate steps in line with the ruling and applicable laws.

Axis Trustee’s letter to Yes Bank was unequivocal in its warning: if the bank fails to comply within the three-day deadline, it will initiate contempt proceedings against the bank as well as its directors and officers responsible for ensuring compliance. The trustee emphasized that such action would proceed without further notice and at the bank’s own risk with regard to costs and consequences.

Yes Bank, however, rejected the allegation of wilful disobedience. It called the trustee’s claims unfounded and without merit, maintaining that it has not acted in contempt of the court order.

The legal background traces to the March 2020 write-off of AT1 bonds by Yes Bank’s then administrator, which was challenged by Axis Trustee in the Bombay High Court. On January 20, 2023, the High Court set aside the decision, ruling that the administrator had exceeded his authority and violated regulatory provisions. The Supreme Court upheld this verdict on October 15, 2023, reinforcing the position that the write-off was unlawful.

Following the Supreme Court ruling, Yes Bank indicated it was still assessing the judgment and exploring possible options and actions. The bank has not yet reinstated the bonds or completed the required corporate procedures, prompting Axis Trustee’s latest demand.

Additional Tier 1 bonds, commonly known as AT1 bonds, are a category of hybrid debt instruments issued by banks to strengthen their capital base. These bonds typically carry higher risk and returns, and their treatment during financial distress often draws close regulatory scrutiny. The Yes Bank case has drawn attention in the financial sector because it sets a precedent on how AT1 bonds can be treated during restructuring or insolvency processes.

Yes Bank is a prominent private sector lender in India that has undergone significant challenges since 2020, including a government-led rescue and recapitalization. The treatment of its AT1 bonds has been a contentious issue among investors, regulators, and the bank itself.

This development highlights the ongoing tensions between bondholders and banking institutions over capital instruments, especially in situations involving regulatory interventions and judicial oversight. The outcome of Axis Trustee’s threat to approach the Supreme Court for contempt proceedings could have wider implications for bondholders and financial institutions across India.

As of now, the banking community and investors await Yes Bank’s next move in response to the trustee’s ultimatum. The resolution of this matter will clarify legal and regulatory boundaries regarding the handling of AT1 bonds and may influence future decisions in similar cases nationwide.