Section 589: Creditors (pari pasu) to be on equal footing

1)  If a person has borrowed debt from two or more creditors at a time or several times by pledging any of his or her goods as a collateral and the goods so pledged as the collateral are not sufficient to pay the debt of all the creditors, except as otherwise provided for in the contract, all the creditors who have taken the goods as collateral shall be deemed to be in creditors (pari pasu) in respect of the debt outstanding and shall have the right to make a proportionate claim on the goods accordingly.

2) A contract entered into giving priority right in the future to a creditor on the goods already pledged as collateral pursuant to sub-section (1) shall be void. If a creditor has already recovered his or her debt from such collateral before the contract becomes void, despite knowing that there are other creditors in respect of the security, such a creditor shall return the amount to the other creditors and recover his or her debt from the pledger’s other assets.