First pari passu charge
Atul Dutt Sharma
(Querist) 05 September 2012
This query is : Resolved
Dear Sir,
Kindly advise me about drafting of instrument for First Pari Passu charge.
Situation: A body corporate is taking a hypothecation loan from a bank to purchase some new moveable assets. For security they decide to create First Pari Passu Charge on these assets.
Query - Whether charge instrument should include term “First Pari Passu Charge” or “First Charge.” If we use First Charge instead of First Pari Passu Charge then its result for the next lender/bank.
J K Agrawal
(Expert) 06 September 2012
Dear Atul
Do not be confused by title of document. the title is Charge only. It the conditions which matters. You incorporate a condition that the property will be free to create further charges on it and no prior charge is there up to now. It simply means that it is first charge and parties intend and free to create second or third charge over it.
advocatejk bar2bench.com
RAJU O.F.,
(Expert) 06 September 2012
First charge over the property means the lender gets first right to appropriate his dues on disposal of the property and hence any subsequent mortgagee only get the surplus if any after sale of property.
Whereas in the case of paripasu charge (no first paripassu in such case, all the participating lenders get share of the sale of the property, proportionate to their quantum of release of loan, in a consortium or multiple lending.
J K Agrawal
(Expert) 09 September 2012
Dear Mr Raju
Pari Passu Charge is not possible in a sequence but it is possible at a one and same time. The Law recognize the term 'Charge' only. we can impose some conditions to limit the rights creditor over pledged goods. When we enter in a so called by you ‘pari passu charge’ we should at least disclose that up to what extent we can pledge the same property further. If you pledge same property for 10 time loan of its value then creation of charge will be of no use.
However if you enter in any such terms you should explain every thing fully in the agreement it self and it does not matter what the title you give to this document.
prabhakar singh
(Expert) 09 September 2012
Its' phrase originated in latin to mean equal footing that describes situations where two or more assets, securities, creditors or obligations are equally managed without any display of preference.
An example of pari-passu occurs during bankruptcy proceedings when a verdict is reached, all creditors can be regarded equally, and will be repaid at the same time and at the same fractional amount as all other creditors. Treating all parties the same means they are pari-passu.
In finance, the term pari-passu refers to loans, bonds or classes of shares that have equal rights of payment, or equal seniority. In addition, secondary issues of shares that have equal rights with existing shares rank pari-passu. Wills and trusts can assign an in pari-passu distribution where all of the assets will be equally divided between the named parties.
Hence guidance to you by Mr.J K Agrawal is all the way correct.
