Consortium Documentation
Establishing legal clarity through Inter-Se agreements and Pari-Passu charge creation.
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Understanding Pari-Passu Rights
Documentation under consortium arrangement ensures the conferring of charge in favor of all participating banks. These legal rights are **Pari-Passu** in nature.
"**Pari-Passu** means **in proportion to**. Securities and realizations are shared in the same ratio as the advances sanctioned."
In essence, if security is enforced, the sales realizations are shared proportional to the outstandings with each bank to the aggregate outstanding.
Ratio-Based
Sharing of Limits & Security
Inter-Se Agreement
An agreement among participating banks setting out the rights, duties, and sharing patterns of limits, security, and ancillary business.
Working Capital Documentation
Pledge Mechanisms
Independent or Joint Pledge options. Joint Pledge requires one bank to manage goods on behalf of all, with pro-rata deliveries and payments.
Cash Credit (Hypothecation)
The most common form. involves joint hypothecation deeds and inter-se pari-passu agreements covering fund-based and non-fund-based limits.
Individual Documents per Bank:
Term Loan Security Creation
Security Types:
- First charge on movable machinery via hypothecation.
- First charge on land, buildings, and fixed assets (Mortgage).
- Joint Equitable/Registered Mortgages in favor of all institutions.
Core Term Loan Documents:
- Common Loan Agreement (CLA).
- Joint Deed of Hypothecation.
- Undertaking to create Registered Mortgage.
- Power of Attorney for mortgage creation.
L/C & L/G Documentation
Operational convenience for LC/LG issuance handled via Indemnity frameworks.
- Common Letter of Indemnity.
- Individual Indemnity per Bank.
Bridge & Adhoc Releases
Handling time gaps between sanction and final security creation.
- No Objection Letters (NOC).
- Ceding Pari-Passu letters.