Yes Bank Case: Madras HC upholds RBI circular on AT 1 bondsAgencies The two judge bench consisting of chief justice AP Sahi and justice Senthilkumar Ramamoorthy while upholding the RBI circular reiterated the central bank’s autonomy in creating and enforcing regulation.

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Yes Bank Case: Madras HC upholds RBI circular on AT 1 bonds
Yes Bank Case: Madras HC upholds RBI circular on AT 1 bondsAgencies
The two judge bench consisting of chief justice AP Sahi and justice Senthilkumar Ramamoorthy while upholding the RBI circular reiterated the central bank’s autonomy in creating and enforcing regulation.
Synopsis
Yes Bank’s AT1 bonds worth Rs 8415 crore were written down to zero in March as part of a government approved restructuring plan for the insolvent lender.
By JOEL REBELLO
ET Bureau
Last Updated: Oct 01, 2020, 07:52 PM IST
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Mumbai: The Madras High Court has upheld the legal validity of Reserve Bank of India’s (RBI) circular on additional Tier 1 (AT1) bonds dismissing a plea by investors of Yes Bank against the write down of these instruments.

A two judge bench has held that the investors invested knowing the risks associated with the instrument and cannot now challenge the decision of the regulator.

Yes Bank’s AT1 bonds worth Rs 8415 crore were written down to zero in March as part of a government approved restructuring plan for the insolvent lender. The write down was based on Basel III norms which allowed banks to extinguish these instruments in an emergency. However, some investors had challenged this write down in courts.

The Madras High Court order is in response to one such challenge by the Bokaria family led by Piyush Bokaria.

The two judge bench consisting of chief justice AP Sahi and justice Senthilkumar Ramamoorthy while upholding the RBI circular reiterated the central bank’s autonomy in creating and enforcing regulation.

“RBI is not just like any other statutory body created by an act of legislature. It is a creature, created with a mandate to get liberated even from its creator,” the two judge bench said noting that it operates the currency, credit and monetary policy framwork in the country.

The bench observed that if the argument of the petitioners about the legal incapacity of the RBI to issue the master circular is accepted, then the entire investment through the offer of instrument would be without authority of law. “This argument would amount to something like dismembering the same branch of a tree on which one is sitting. The entire edifice of the transaction from its very inception will fall through,” the bench said.

The petitioners invested in these instrument knowing the risks associated with it and cannot now say they are surprised by the turn of events.
“It is not that the petitioners have been caught by surprise, but the transaction is an entire outcome of their own acquiescence in order to achieve higher prospects,” the bench said.

The Madras High Court order is a blow to investors seeking to recover their money invested in these securities. A similar case is also being heard in the Bombay High Court, the next hearing date for which is still not out. It remains to be seen if this judgement impacts that case.