Sometimes, one small Latin phrase quietly decides who gets money — and who must wait.
That phrase is pari passu.
You may find it in loan agreements, company documents, or court judgments. It sounds complicated. It isn’t.
Let’s break it down.
What Does Pari Passu Mean?
Pari passu means:
“On equal footing”
or
“With equal priority.”
In simple words — everyone stands at the same level.
No one is ahead. No one is behind.
But here’s the important part:
👉 It does not mean everyone gets the same amount of money.
👉 It means everyone has the same legal priority.
And that difference matters.
A Simple Real-Life Example
Imagine three friends lend money to a business.
Later, the business fails and only ₹50,000 is left.
Friend A is owed ₹40,000
Friend B is owed ₹30,000
Friend C is owed ₹30,000
Total owed = ₹1,00,000
Money available = ₹50,000
If the agreement says the lenders rank pari passu, the money will be divided proportionately.
No one gets paid fully before others.
So each friend receives money based on their share of the total claim — not based on influence or speed.
That is pari passu in action.
Where Is This Used in Law?
One important place is under the Insolvency and Bankruptcy Code, 2016 (IBC).
When a company goes into liquidation, Section 53 of the Code decides who gets paid first. This is called the “waterfall mechanism.”
Under Section 53(1)(b):
- Workmen’s dues (for the last 24 months), and
- Secured creditors who give up their security
are placed pari passu.
That means they share the same priority level.
A Practical Insolvency Example
Suppose:
- A company is being liquidated.
- ₹1 crore is available.
- Workmen are owed ₹40 lakh.
- A secured bank is owed ₹60 lakh.
Since both rank pari passu, neither can be paid first in full.
If only ₹50 lakh is available instead of ₹1 crore:
- Workmen get ₹20 lakh.
- Bank gets ₹30 lakh.
Both share the loss proportionately.
This ensures fairness.
Why Does the Law Do This?
Because insolvency is not just about banks.
It is also about:
- Workers who depend on wages
- Institutions that financed growth
- Maintaining balance in the financial system
The Supreme Court, in Swiss Ribbons Pvt. Ltd. v. Union of India, recognized that the IBC creates a carefully structured system of priorities.
Similarly, in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the Court clarified that fairness does not mean identical outcomes — it means respecting statutory ranking.
And when the law says pari passu, it means equality of position.
What Pari Passu Does NOT Mean
❌ It does not mean equal payment.
❌ It does not mean generosity.
❌ It does not erase differences in claim amounts.
✔ It means equal legal standing.
✔ It means no one jumps the queue.
✔ It means shared distribution when funds are limited.
How Pari Passu is used in English
A general reader can use the term pari passu in formal or thoughtful writing to mean “on equal footing” or “at the same level.” It works well in professional, academic, or analytical contexts rather than casual conversation. For example, one might say, “Economic growth must progress pari passu with environmental protection,” or “Rights should evolve pari passu with responsibilities.” The phrase adds a polished and intellectual tone, but it should be used where “equally” or “with equal priority” would naturally fit.
A Line to Remember
Pari passu ensures equality of ranking — not equality of amount.
It is not charity.
It is structured fairness.
And in the world of insolvency, that difference decides everything.
In my latest post on pari passu, we saw how the law ensures equal ranking and proportionate distribution among creditors. But when creditors do not stand equally, priority takes over. That is where First Charge and Second Charge come in — determining who gets paid first and who waits. To understand how hierarchy reshapes recovery, read my earlier post:
First Charge & Second Charge: The Real Power Game in Debt Recovery
Keep learning. Every word you understand strengthens your legal voice.
...Anupama Singh
Anupama Singh | Legal Blogger | Lawyer Lingo
#PariPassu #LegalEnglish #InsolvencyLaw #IBC #LawExplained #LegalTerms #CorporateLaw #LawStudents #FinancialLaw #LearnLaw
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