Pari-passu is a Latin phrase used in contract law that means “equal footing”. Thus pari passu charge means, having equivalent charge/ rights or say charge-holders have equal rights over the asset on which pari-passu charge is created.
Most of the large borrowers are financed by multiple banks in a consortium or under a Joint Lending Arrangement (JLA). Each bank that participates in the joint lending program takes a share of a certain percentage of the 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 that 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 that 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 the Pari-Passu charge. The law requires such charges on assets of the company to be registered at ROC within 30 days from the date of creation of the 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 of the security held by them to recover their dues. The realization proceeds of the assets disposed of would be shared among joint lenders in proportion to the balances outstanding in their accounts.
For example, Bank A, Bank B, and Bank C are financed to a single borrower D on certain common assets like stocks, book debts, and other currents under a consortium arrangement. The working capital finance of Bank A is Rs.50 crore, Bank B is 30 crore and Bank C is 20 crore having pari-passu charge on the current assets borrowed by company D. In case of default of D, bank A, Bank B, and Bank C will have the right to recover the amount from the realization of the charged security in the ratio of 5:3:2.
Normally bank that finances the working capital limit may stipulate a condition that the company should offer collateral security by way of the creation of the second charge on the properties against which term lenders have the first charge.
The main difference between pro-rata lies in their context of use. Pari passu highlights the equal priority or status among parties, while pro rata focuses on the proportional division of payments or resources based on the size of each party’s stake or claim. Pari-passu is common in bankruptcy proceedings as well as debts such as parity bonds in which each party gets the same amount.
The pari passu clause is a standard clause in public or private international unsecured debt obligations of issuers(syndicated loan agreements and bond issuances). A pari passu clause included in sovereign bond issuances usually reads that the bondholders are in the same ranking as other unsecured creditors. (Bank for International Settlement by R Olivares-Caminal · Cited by 34).
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“The difference between first charge and second charge and pari passu“
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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
Sir im a central govt employee and wish to take the govt HB Advance..but im falling short of another 15 lakhs …so can i avail a loan from any banks for the same property on pari passu charge? Do banks provide HB loan On pari passu charge? If so, which bank, sir?
First of all find out whether such provision is there in HB advances and the department is ready to offer pari-passu charge on the house building. Normally banks do not go for joint lending in case of housing loans. However, you may try if your department is agreeable and undertake to deduct and pay bank’s loan installment from your salary and also for pari passu charge on the property. You may approach the branch manager of a bank only after collecting full details from your office,
sir ia have applied for certified credit officer exam in that they are asking regarding how to fix lc.in that i got little confusion on leadtime transit period usance period eoq could u please explain with one example reg lc assesment sir.
Please read following post
https://bankingschool.co.in/financial-analysis/assessment-of-lclg-limits/
Normal Transit Period (NTP) is commonly misunderstood for the time taken for the goods to reach the destination. It is not so. The term Normal Transit period (NTP) used for the average period normally involved from the date of negotiation/ purchase/ discount of a bill, till the credit of that bill proceeds in the Nostro account of the financing bank.
https://bankingschool.co.in/foreign-exchange/meaning-of-normal-transit-period-and-notional-due-date/
Sir,
My name is Navneeth and i had earlier taken a House Loan from my organisation for 33 lakh. and my EMI has already started. now for the property that i am buying which is under construction and likely to be completed by Oct 2018. now to get possession of this property the last 5% payment is balance and property people have told me pay an additional 8 lakh. when i approached my organisation who had lent me loan. they said they won’t be able to disburse additional amount of loan as my EMI has started and told me to approach the bank. and when i approached the bank/ LIC for additional amount. they told me to submit:-
1. NOC to be provided by the EMPLOYER for creation of Paripassu Charge.
2. All Original documents have to be submitted to LICHFL for safe custody.
3. MODT (MEMORANDUM OF DEPOSIT OF TITLE DEEDS) to be created after registration of SALE DEED.
Now i again approached my lender of loan. they only have a tripartite document between me, my builder and my lender on the basis of which the loan amount was dispersed and my lender has also confirmed that my lender is ready to give me a NOC.
now i am a bit confused. could you please help.
-Navneeth. ([email protected]/)
Your employer being first charge holder on the property they will be holding the title deeds of the mortgaged property. They will not part with the original title deeds to the second lender. Your employer may attest the copies of the title documents held with them along with the copies of legal opinion and valuation report. The employer shall specifically write if they are agreeable for pari-passu (inter-se) agreement with the second lender and holding the original title deeds on behalf of the second lender. Many organizations are ready to seed the second charge on the property by the second lender, wherein the second lender gets the right over the property /sale proceeds only after satisfaction of the first charge by the original lender. In the second charge, the second lender does not get equal right over the property with the first lender. If the second lender accepts a second charge condition, in that case, they have to get a no objection letter to create the second charge by the first.