Yes Bank Denies Wilful Disobedience as Axis Trustee Threatens Contempt Over Rs 8,415-Crore AT-1 Bonds

A fresh legal escalation has erupted between Yes Bank and bondholders after the debenture trustee, Axis Trustee Services Limited, issued an ultimatum warning of contempt of court action if the private sector lender fails to promptly reinstate Additional Tier-1 (AT-1) bonds worth Rs 8,415 crore.

In a regulatory filing, Yes Bank pushed back strongly against the trustee's allegations, rejecting claims of "wilful disobedience" as baseless and without merit, while maintaining that it is in the process of evaluating lawful steps to comply with the judiciary's directives.

The Trustee's Ultimatum

In a formal communication dated October 28, Axis Trustee Services served a three-day notice calling upon Yes Bank to restore the extinguished AT-1 bonds in the register of debenture holders, undertake all necessary corporate actions, and reactivate the respective securities identifiers (ISINs: INE528G08352 and INE528G08394) across the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

The trustee warned that failure to comply would force it to initiate civil contempt proceedings under Section 2(b) of the Contempt of Courts Act, 1971, in the Supreme Court against Yes Bank and its key directors and managerial officers responsible for compliance, entirely at the lender's risk and cost. The trustee asserted that non-compliance following the Supreme Court's verdict amounted to deliberate evasion under the guise of prolonged legal evaluations.

Yes Bank's Stance

In its formal response dated October 30, Yes Bank defended its conduct and dismissed the characterisation that it was stalling execution.

The bank stated that its board of directors is fully cognisant of the matter and is examining the judgment and its consequential balance sheet implications in depth to determine appropriate compliance pathways permissible under Indian law.

Key Points in Yes Bank's Exchange Disclosure:

• The bank refuted the accusation of wilful disobedience, terming the trustee's claims as "baseless and without merit".
• The management stated that evaluating the legal consequences and remedies is being conducted directly toward compliance with the apex court's ruling.
• The lender reiterated that it remains committed to operating in accordance with applicable laws and regulatory frameworks while reserving all statutory remedies.

Background of the AT-1 Bond Dispute

The dispute dates back to March 2020, when the Reserve Bank of India (RBI) placed Yes Bank under a moratorium and appointed an administrator to oversee its reconstruction. As part of the state-backed restructuring package led by State Bank of India and other lenders, the administrator wrote down AT-1 perpetual bonds worth Rs 8,415 crore to zero.

Institutional and retail bondholders, represented by Axis Trustee Services and investor associations, challenged the write-off before the Bombay High Court. On January 20, 2023, the High Court quashed the administrator's decision, ruling that the write-down was carried out without legal authority after the draft scheme had been modified.

Yes Bank and the RBI subsequently approached the Supreme Court. On October 15, the apex court dismissed the appeals, declining to interfere with the High Court's ruling and vacating any interim relief that had stayed the restoration of the debt.

Market and Balance Sheet Implications

The push to reinstate Rs 8,415 crore worth of AT-1 bonds carries substantial ramifications for Yes Bank and the broader Indian debt market:

Balance Sheet and Capital Ratios: Reinstating the bonds would require Yes Bank to account for these instruments on its liabilities ledger, raising questions about whether they qualify as regulatory capital under Basel III norms or add to financial leverage.

Unpaid Coupons: Since the write-off in 2020, coupon payments on the perpetual instruments have remained frozen. Although Yes Bank recently noted in market disclosures that it retains contractual discretion over servicing AT-1 coupons, bondholders may contest any moves to withhold accrued payouts.

Precedent for Indian AT-1 Instruments: The litigation sets an important legal benchmark regarding the sanctity of bond contracts versus the emergency resolution powers of bank administrators and banking regulators in India. Market participants will closely watch whether the trustee formalises its contempt petition before the Supreme Court or if the lender initiates procedural reactivation with depositories.