Seven months after the
Yes Bank bailout, the Additional Tier 1 (AT1) Bond holders are still waiting for their case to be heard in the court.
The Bombay High Court, which is hearing the AT1 Bond case, has extended the interim orders till October 31.
AT1 bonds, also called perpetual bonds, are considered quasi-equity instruments and are riskier than Tier 1 bonds. Investors are usually lured by the high interest they offer.
“We expect the hearing to begin soon,” said a senior official at Axis Trustee. “The court recently ruled that the interim orders will continue till October 31,” the official said.
In mid-March, the court had passed the interim order that said any action taken by the respondents “shall be subject to further orders” passed by the court.
Investors have lost around Rs8,400 crore in Yes Bank’s AT1 Bonds. These bonds were written off at the time of bail-out in March as per the scheme of reconstruction formulated by the Reserve Bank of India (RBI).
Yes Bank was bailed out by a consortium of banks led by State Bank of India (SBI).
Bondholders seek justice
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The official at Axis Trustee said the alleged misselling had been made as part of the complaint by the Trustee’s legal team.
The trustee argues that Yes Bank was still a going concern at the time of the bailout and hence the bondholders should be treated above or at par with equity holders.
However, both the Yes Bank and the RBI have strongly defended their positions in separate affidavits in the Madras High Court saying the write down was as per Basel III rules.
This was in response to a complaint filed by 63 Moons Technologies. The firm, founded by Jignesh Shah, invested Rs 300 crore in 3,000 bond units.
In the counter-affidavit filed in the Madras High Court recently, Yes Bank’s RBI-appointed managing director and chief executive officer, Prashant Kumar, submitted that investors purchased these perpetual bonds with “eyes open”.
“The claim of violation of natural justice is denied. The petitioner had purchased the AT1 bonds with eyes open, knowing all the risks attached with the purchase,” said Prashant Kumar in the affidavit.
The RBI, on its part, had said the action for writing off has been rightly taken under the provisions of the contract between Yes Bank and AT1 bondholders, and hence, there is no merit in the petitioners contentions.
“The whole purpose of writing off the AT1 Bonds is to ensure that the capital infused by the public sector bank i.e. SBI and other investors should not be diluted. The AT1 Bonds are a liability and hence, the same should be written off for the effective implementation of the Notified Scheme, which is made in the interest of the general public and to regain the confidence of the depositors,” the RBI said.
The RBI affidavit also said the courts must be slow in interfering and exercising judicial review of the decisions of a private sector bank which are contractual in nature by issuing a writ.
The affidavit also said: “Prior to the advent of the financial difficulties of Yes Bank, the petitioner and other bondholders of Yes Bank have reaped high financial rewards on the AT1 Bonds. The Petitioners cannot on one hand enjoy the benefit of a high interest rate/coupon rate by investing in such high-risk instrument and thereafter, in times of such failure, shift the onus of loss upon the RBI." The AT1 bondholders have been maintaining that Yes Bank’s executives pitched these bonds as ‘super FDs’ which offer consistent returns and safety of a regular fixed deposit.
In most cases, these investors had existing regular fixed deposits in Yes Bank that fetched them a rate of interest of around 8 percent. Yes Bank executives offered 9-9.5 percent return on these bonds and made them transfer substantially high amounts (in some cases Rs 1 crore to Rs 1.5 crore) to these instruments, they said.
The court’s ruling will be crucial for these investors.
