Jignesh Shah’s 63 Moons Technology, which invested Rs 300 crore in Yes Bank’s AT1 bonds, files court petition against writedown

FTIL founder Jignesh Shah

 Jignesh Shah-founded 63 moons technologies, which has an exposure of Rs 300 crore to the written-off additional tier 1 (AT1) bonds of Yes Bank, has launched a lawsuit against the private sector lender as well as the Reserve Bank of India (RBI).

The company, earlier known as Financial Technologies (India), filed a petition in Madras High Court against the bank's decision to write off the AT1 bonds as part of a rescue plan.

Also Read: Exclusive: RBI slams Yes AT1 bond investors, says can't blame regulator after enjoying returns in good times

The company invested in 3,000 bond holdings of Yes Bank’s written down AT1 bonds and has been holding these papers since March, 2018, according to the petition, a copy of which Moneycontrol reviewed. “The petitioner’s Rs 300-crore investment in AT1 debenture bonds has been completely misused by the promise of good returns,” the petition said.

“Since the matter is sub judice, we would not like to offer any comment,” a company spokesperson said.

The company filed the petition on June 1 against Yes Bank, RBI and the administrator appointed by RBI. Jignesh Shah, the founder of Multi-Commodity Exchange of India, was once a leading participant in India’s financial markets, but has long been dogged by a raft of legal controversies over alleged fraud.

In March, Yes Bank forced a government-led rescue after it collapsed under the weight of alleged financial irregularities by the former management. RBI, which took over the bank, wrote down the so-called AT1 bonds of Yes Bank worth Rs 8,415 crore as part of a revival plan. The unexpected decision shocked investors and several approached different courts seeking judicial intervention against the decision.

63 moons technologies said in the petition that a write-off of bond holders’ claim — under Basel-III norms as well as international best practices — can only take place when the equity capital has virtually lost all value and must be written off.

AT1 bonds, also called perpetual bonds, are considered quasi-equity instruments and are riskier than Tier I bonds. The lure for investors is the higher interest rates they carry.

After the Yes Bank reconstruction scheme was notified by the government, there was a confusion in the market on March 14 on whether the AT1 bonds will be honoured or extinguished as said in the draft reconstruction scheme made public by RBI. But Yes Bank’s RBI-appointed administrator Prashant Kumar later clarified that these bonds will be written down fully, under the agreed reconstruction scheme.

This is because the reconstruction scheme was formed after the RBI invoked Section 45 of the Banking Regulation Act, 1949, which arises when the bank is deemed to be non-viable or approaching non-viability, enabling the write-down of certain Basel III AT1 Bonds.

The petitioners have argued that the total write down of AT1 bonds and treating these instruments below equity is not fair. Bondholders have invested a total of nearly Rs 94,000 crore in AT1 bonds issued by Indian banks, according to rating agency ICRA.