# Creation of Security for Secured Deposits [Rule 6]

A company that elects to take secured deposits must back the promise with concrete asset cover.

## Key Requirements

1. Timeline: Within 30 days from the date of acceptance of deposits.

2. Mode of Security: A charge on the company's assets by way of EITHER:

Mortgage, OR
Hypothecation.

3. Adequacy of Cover: The total value of security, by way of:

Deposit insurance, OR
Charge on assets, OR
Both combined,

shall NOT be less than (Deposit amount + Interest payable) thereon.

## Why this matters

Secured deposits are sold to depositors as lower-risk; the Rule ensures the security is actually capable of redeeming both principal and interest. If asset cover dips below this threshold, the deposit ceases to be truly 'secured'.

Worked example

### Example 1

Example 1 — Coverage Test: A company accepts ₹100 crore of secured deposits at 10% p.a. for 24 months. Approximate aggregate interest ≈ ₹20 crore. The total security cover (insurance + charge) must be at least ₹120 crore.

### Example 2

Example 2 — Timeline: Company accepts deposits on 1 April 2025. The charge by way of mortgage/hypothecation must be created on or before 30 April 2025.

⚠️ Common exam mistakes

Creating security only for the principal — interest payable must also be covered.
Using modes other than mortgage or hypothecation (e.g., pledge or lien) — these are not permitted under Rule 6.
Missing the 30-day window post-acceptance.

Bare-Act text Rule 6 · Companies (Acceptance of Deposits) Rules, 2014 · click to expand

Rule 6 — Creation of security: (1) For the purposes of providing security, every company referred to in sub-section (2) of section 73 and every eligible company inviting secured deposits shall provide for security by way of a charge on its assets as referred to in Schedule III of the Act excluding intangible assets of the company for the due repayment of the amount of deposit and interest thereon. (2) The amount of such deposits and the interest payable thereon shall not exceed the market value of such assets as assessed by a registered valuer.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →