By Tanushree Pande
The ‘Yes Bank’ restructuring plan which is being currently litigated before the Hon’ble Supreme Court is being closely monitored by India Inc. The outcome of the case will have a paradigm effect on the principles of corporate finance in India. To begin with, the key principle of corporate finance is that in the event of liquidation, equity shareholders will be paid out after all other claims against the company have already been paid. With equity, we understand high risks and high rewards. The equity shareholders are last to be paid in the order of priority and that is precisely the reason why equity is considered the most volatile mode of investment. In Yes Bank’s case the Hon’ble Bombay High Court while overseeing the Bank’s restructuring plan was seized with this issue of prioritization.
The approach of the Apex Court will also provide much-needed clarity to investors regarding what they should expect while buying a bond or an equity share of a bank in the future. It may further be noted that the decision of the Apex Court will bring a question in the minds of the existing bondholders of commercial banks in India, whether to redeem the bonds or to switch to equity.
Should we assume that in the coming days investing in bonds will be riskier than equity in the future? How long will the bondholders have to fight their battles against the behemoth of the banking sector across various legal forums in the country in the hope to save their investments? Perhaps we will all have to wait for the final outcome of this issue in the hands of the Apex Court.
(The Author is a Corporate Lawyer and leads the Corporate Practice of ‘Agriya Law Chambers, New Delhi)