Parri Passu- Charge on an Asset

When an asset is given to the custody of the lender, the asset is said to be charged to the lender. The lender gets the right on the asset upon failure of the borrower to repay the loan. The charge can be a first/second charge or a pari passu charge.

In the case of first charge, the lender gets absolute right on the security. Any surplus from the sale of the asset should be turned over to the borrower.

In the case of the second charge the lender gets the right on the asset after satisfying the first lender. Any surplus after satisfying his claim should be turned over to the borrower.

Pari passu charge gives a parallel proportionate right to the lenders. Realisation of the asset should be shared in proportion to the balances outstanding to the respective lenders.