Banking News

Meaning of Pari-Passu Charge

Meaning of Pari-Passu Charge

Most of the large borrowers are financed by multiple banks in a consortium or under Joint Lending Arrangement (JLA). Each bank that participates in the joint lending program takes the share of the certain percentage of total amount of finance under uniform terms and conditions including the rate of interest. The loan program of multiple banks will be under common loan documentation and common asset classification for the combined limits sanctioned by them. For this purpose, participating banks enter into an inter-se agreement which allows these banks to hold common security against their advances.  The borrowing company executes the common loan agreements, hypothecation deeds, mortgage deeds and other similar documents for the combined limits sanctioned by the participating banks under consortium/ JLA. The leader bank (usually the bank which takes up the largest share of the limits deemed to be the leader of the consortium/JLA) will hold the common documentation executed by the borrowing company. This type of charge created through common documents on behalf of multiple banks is called Pari-Passu charge. Law requires such charges on assets of the company to be registered at ROC within 30 days from the date of creation of charge or such extended time permitted by the ROC.

The Pari-Passu Charge provides an equivalent right to the share of specified assets of a borrowing company to all the lenders under the arrangements. In the event of default of repayment from the borrower the joint lenders may decide to dispose-off the security held by them in order to recover their dues. The realization proceeds of the assets disposed-off would be shared among joint lenders in proportion to the balances outstanding in their accounts.

Related Articles:

Mode of charge registration under companies act
How to get ‘Satisfaction of Charge’ certificate from Registrar of companies?
Effects of non-registration of charge
Effects of charge registration under companies act
Difference between first charge and second charge
Meaning of fixed charge, floating charge, and crystallization of charge

After delay in filing of registration of the charge: Condonation route

No Comments

Leave a Reply

Your email address will not be published. Required fields are marked *


Latest Tweets

error: Content is protected !!

Sign up for our News Letter

We will let you know when new articles are posted on this site.

Privacy Policy. This information will never be shared.