Legal Maxim

Home » Pari Passu

Literal Meaning

With an equal step or on equal footing




It is a principle which means all unsecured creditors in insolvency processes, such as administration, liquidation, and bankruptcy must share equally any available assets of the company or individual, or any proceeds from the sale of any of those assets, in proportion to the debts due to each creditor. It is one of the most fundamental principles of insolvency law, although it can be varied by agreement. It is a financing arrangement that gives multiple lenders equal claim to the assets used to secure a loan. If the borrower is unable to fulfill the payment terms, the assets can be sold, and each lender receives an equal share of the proceeds at the same time. Pari-passu essentially means to treat all parties the same. This is different than most agreements involving more than one lender, which typically establish a repayment hierarchy where certain lenders get top priority in terms of pay-out timing and amounts.


Pari Passu is the way unsecured creditors are treated in a bankruptcy. All the unsecured creditors get paid at the same time and the same fractional rate of the debt they were owed.

Case Laws

In International Coach Builders Ltd vs. Karnataka State Financial Corpn, the Supreme Court observed that ‘Pari Passu’ means “with equal steps, equally, without preference”. The rights of the pari passu charge holders would run equally, temporally, and potently, with the rights of the secured creditors. The Official Liquidator, as the representative of the workmen, to enforce such pari passu charge would have the right of representing the workmen equally with the rights of the secured creditors.

In Commissioner Of Income-Tax vs. Gold Mohore, Investment Co. Ltd., the Supreme court of India held that the correct method of determining the profit or loss on the sale of bonus shares in cases where bonus shares rank pari passu is to take the cost of the original shares and spread it overall the original as well as the bonus shares and to find out the average price of all the shares.

error: Content is protected !!