Judicial review of regulatory action strengthens accountability but may constrain swift bank resolution. Discuss with reference to recent cases.

Judicial review lets courts test whether executive and regulatory action stays within the law. On 15 October 2026, the Supreme Court set aside Yes Bank's 2020 write-off of ₹84 billion of Additional Tier-1 (AT1) bonds [1]. The case shows both the value of judicial review and its cost when a bank has to be rescued quickly.

Judicial review strengthens accountability

• Rule of law over convenience: RBI's draft reconstruction scheme provided for a permanent AT1 write-down [2]. The Bombay High Court found that the administrator had exceeded his powers by writing off the bonds after the bank had already been reconstructed [3].
• Fair order of losses: AT1 holders were wiped out, while shareholders faced only a three-year lock-in on 75% of their shares [1]. Normally owners absorb losses before lenders do, so this reversed the expected order.
• Investor protection: SEBI penalised former CEO Rana Kapoor over AT1 sales to retail investors [5]. Fines punish the seller but do not repay the buyer, so courts were the bondholders' only route to getting their money back.
• Checks on powerful appellants: the RBI and the Union government were held to legal limits [1]. This upholds Article 14's guarantee against arbitrary state action.

Judicial review may constrain swift resolution

• Delay: the dispute moved from the High Court (2023) to the Supreme Court [4] and took about six years to settle [1]. A bank rescue needs certainty within days.
• Reopened rescues: ₹84 billion of claims are back on the books of a bank that is now 24% owned by SMBC [1]. Investors who rescued it now carry risks they never priced in.
• Regulatory chill: fear of litigation may make regulators hesitate to impose losses on bondholders. Writing them off in a crisis is exactly what AT1 bonds are designed for [1].
• Costlier capital: if AT1 contracts look legally fragile, banks may pay more to raise capital.

Way forward

• Write every loss-sharing step into the final notified scheme, so a step left out after the draft cannot be undone later [2][3].
• Enact a dedicated resolution law with clear write-down sequencing, as the FRDI Bill, 2017 attempted.
• Set up time-bound benches for disputes over bank resolutions.
• SEBI should check who buys complex bank bonds at the point of sale.

Speed and legality need not conflict. The Yes Bank ruling faulted the process, not the AT1 bond itself. Rules framed in advance and written into notified schemes would let regulators act quickly and still withstand court scrutiny. That serves both financial stability and the accountable institutions envisaged by Article 14 and SDG 16.