2023 (2) TMI 282 - HC - SEBI

Decision to write off Additional Tier 1 (AT-1) bonds - Petitioner raised objection to the writing down of AT-1 bonds and even suggested for converting into shares - Petitioner seeks directions against the National Securities Depositories Limited and Central Depository Services to take such steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations, or any such steps that may have been undertaken pursuant to the impugned decision to write off the Additional Tier 1 bonds - HELD THAT - It appears that upon consideration of the objections the Reserve Bank made modification in the draft scheme, as permissible under section 45(6)(b) of the Act of 1949. It deleted the clause of writing down of AT-1 bonds. After said modification the scheme was placed by RBI before the Central Government as required and mandated under sub section 7 of Section 45 of the Act of 1949. Central Government thereafter sanctioned the scheme sans clause of writing down AT-1 bonds. The final scheme sanctioned by the Central Government did not contain the clause or provision for writing down AT-1 bonds. Section 45(7) further provides that the scheme sanctioned by the Central Government shall come into force on such date as the Central Government may specify. Proviso to sub section 7 of section 45 of Act of 1949 empowers the Central Government to specify different dates for different provisions of the scheme. In the final scheme, March 13, 2020 is the date prescribed of coming into force the scheme, the same would mean that the Bank stood reconstituted on March 13, 2020. Only because the shares were to be allotted to SBI within two working days of the final scheme being notified, would not extend the date from which the scheme came into force nor it would extend the appointed date or the date the Bank is reconstituted. Yes Bank stands reconstituted on March 13, 2020. Under the Scheme, Moratorium period was extended by three days and the Administrator to vacate the office after seven calendar days from the date of cessation of moratorium. Yes Bank stood reconstituted on March 13, 2020 upon the Notification of the final Yes Bank Ltd. Reconstruction Scheme, 2020. After the bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures. Board of Directors were notified in the final scheme. However, actual time period was given for the Board of Directors to take over from the Administrator and for that purpose, tenure of the Administrator was also extended to seven days from the date of reconstitution of the bank. During this period, the Administrator could not have taken such a policy decision of writing down the AT-1 bonds. Nor the RBI had authorized him to do so. The Final Reconstruction Scheme also did not authorize Administrator to write off the AT-1 bonds. It appears that Administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020. Reading clause 57 of the Information Memorandum along with the Final Reconstruction Scheme, it would be manifest that the administrator could not have exercised his powers after reconstitution of the bank. The clauses in the Information Memorandum which according to the Respondents is a contract between two private parties, is based on the Master Circular. The Master Circular is issued by the Reserve Bank under its statutory powers. The covenant and the terms in the Information Brochure i.e. between the parties is based on statutory Master Circular. Information Memorandum and its clauses refer to Master Circular. The said Information Brochure has a statutory flavour. It is based on the statutory Master Circular. In that event, the agreement would have a statutory base and such an agreement can certainly be enforceable. Reliance can be had to the judgment of India Thermal Power Ltd. 2000 (2) TMI 842 - SUPREME COURT as observed that if entering into a contract containing the prescribed terms and conditions is a must under the statute then the contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it, which are statutory then the said contract to that extent is statutory. Clause 57 of the Information Memorandum binding the parties and relevant for our consideration is extracted from the Master Circular based on Basel III Norms. Clause 57 also suggests that the writing off or conversion to shares would be in accordance with these rules. In view of that, Writ Petition would be tenable before this court. The impugned letter dated March 14, 2020 and decision to write off Additional Tier 1 (AT-1) bonds deserve to be set aside and is hereby quashed and set aside. Necessary consequences shall follow.

Summary

Issues Involved:
1. Legality of the decision to write off Additional Tier 1 (AT-1) bonds by the Administrator of Yes Bank.
2. Competence of the Administrator to write off AT-1 bonds post-reconstruction.
3. Applicability and interpretation of the Master Circular issued by RBI.
4. Contractual obligations under the Information Memorandum.
5. Maintainability of the writ petition under Article 226 of the Constitution against a private bank.

Issue-wise
Detailed Analysis:

Legality of the Decision to Write Off AT-1 Bonds:
The core issue is the challenge against the communication dated March 14, 2020, where the Administrator of Yes Bank informed the stock exchanges about the decision to write off AT-1 bonds. The petitioners sought to quash this decision and requested the reversal of any accounting entries related to the write-off. The court examined whether the Administrator had the authority to make such a decision and whether it was consistent with the statutory framework and contractual obligations.

Competence of the Administrator:
The court noted that the final Yes Bank Reconstruction Scheme, 2020, notified on March 13, 2020, did not contain provisions for writing off AT-1 bonds, unlike the draft scheme. The scheme came into force on March 13, 2020, meaning Yes Bank was reconstituted on that date. The court concluded that the Administrator exceeded his powers by writing off the bonds on March 14, 2020, as the bank was already reconstituted, and such a decision should have been taken by the newly constituted Board of Directors.

Applicability and Interpretation of the Master Circular:
The Master Circular issued by RBI under its statutory powers has a statutory recognition and provides guidelines for writing down AT-1 bonds. Clause 57 of the Information Memorandum, which was invoked for the write-down, is based on this Master Circular. The court emphasized that the Master Circular and the Information Memorandum should be read together, and any action taken must be consistent with the statutory provisions and the final reconstruction scheme.

Contractual Obligations under the Information Memorandum:
The Information Memorandum, which governed the issuance of AT-1 bonds, contained clauses (e.g., Clause 57) allowing for the write-down of bonds under certain conditions. However, the court found that these clauses could not be invoked post-reconstruction of the bank. The court held that the contractual terms had a statutory base, derived from the Master Circular, and thus, the write-off decision taken post-reconstruction was not valid.

Maintainability of the Writ Petition:
The respondents argued that the writ petition was not maintainable under Article 226 of the Constitution as Yes Bank is a private entity and the matter was contractual. However, the court held that since the Information Memorandum had a statutory flavor, being based on the Master Circular issued by RBI under statutory powers, the writ petition was maintainable. The court relied on the judgment in India Thermal Power Ltd. to conclude that a contract incorporating statutory terms becomes a statutory contract and is enforceable in a writ petition.

Conclusion:
The court quashed the decision to write off the AT-1 bonds, stating that the Administrator exceeded his authority by making such a decision post-reconstruction. The court emphasized that any further action must be in accordance with the law and statutory provisions. The writ petition was deemed maintainable as the contractual terms had a statutory base. The judgment provides a detailed analysis of the interplay between statutory regulations, contractual obligations, and the authority of the Administrator in the context of bank reconstruction.