Legal Question in Banking Law in India

what is meaning of pari passu charge in banking refrence? Please explain

in detail.

Furthermore what is meaning of counter guarentee and omnibus counter guarentee?


Asked on 8/19/09, 9:37 am

2 Answers from Attorneys

J. Radhakrishnan independent Practice

Pari passu charge means when more than one creditor has a charge like mortgage on the same property though created at different times, if they agree among themselves, their charge/mortgage will rank equal in enforcement. For e.g. A Bank having a charge on 1.1.2007 and B Bank has a charge on the same property on 2/2/2008, normally A Bank has the priority. Only after satisfying the dues of A Bank, B bank can claim any surplus realised over and above the dues to A Bank. But if both the banks agree that their charges are pari passu , they can have the share of the proceeds of the sale of the property in enforcement of their mortgages equally i.e. pro rata to their advances or outstandings depending upon the wording of the document under which the pari passu charge has been agreed among them.

Re counter guarantee means if A bank on behalf of its client B gives a guarantee to C, the bank will take a counter guarantee from B and any of his associates if stipulated a counter guarantee that in case C enforces the guarantee against A, B and his associates, if any, will make good the amount to A.

Omnibus counter guarantee is taken where number of guarantees are issued upto a total limit, and the limit is maintained by issue of guarantees, one counter guarantee will be taken to cover all those guarantees which are issued within the total limit upto which the bank issues guarantees under the omnibus guarantee.

A word of caution. This forum is not intended to be a class room to teach nuances of banking law. It is better to seek advice on specific issues on banking law rather than seeking education on general terms used in bank guarantees.

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Answered on 8/19/09, 11:29 am
Pranav Desai PD Legal & Associates

I agree with the view of Radhakrishnan

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Answered on 8/23/09, 2:47 am


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