Legal Question in Banking Law in India

Liability of Lead Bank to other members of a consortium of lending banks

A Lead Bank informed other 5 banks that they can share the working capital finance to a company assessed by it. It allotted specific percentage of the finance to be given to the borrower. Lead Bank gave letters to member banks that it holds all the securities it has on account of the borrower on a pari passu charge in favour of member banks. No formal interse paripassu agreement was executed. Can we establish that even in the absence of formal documentation, the Lead Bank is fiduciarily liable as agent for the other members of the consortium. Relevant case law including from U.K.precedents is required. Any book or article on the above subject, author, availability, price etc. may also be given.

Asked on 8/28/06, 3:26 pm

2 Answers from Attorneys

Jitendra Kumar Kumar Pandey & Co.
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Re: Liability of Lead Bank to other members of a consortium of lending banks

I have practical experience while doing banking cases wherein the lead banker is liable to its consortium partner banks only on the basis of letter issued by the lead banker to consortium partners because in this case letter becomes a contract.Only the bank going in for recovery of its share will have to follow the procedure given in law.If you want U.K. precedent consult and do the research work in All England Reporter.Once you read Civil Procedure Code of Indian Law in addition to Conract Law , you will find yourself comfortable as to what procedure you are required to follow and how you can put forth your claim.If you require any further clarification please feel free to ask

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8/29/06, 2:05 am
BANKIMCHANDRA SHAH ADVOCATE DIGVIJAYA CONSULTANCY SERVICES
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Re: Liability of Lead Bank to other members of a consortium of lending banks

You need to contact personally in this matter. The letter issued is sufficient for establishing the liability on the lead Bank.

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8/29/06, 6:21 am

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