Legality of Bengaluru firm’s digital gold investment scheme with over 3 crore subscribers comes under police, court scrutiny

The firm, on its part, has approached the Karnataka high court to stop the investigations on the grounds that no complaints have been filed by any customers and that it is merely an “online micro saving and investment platform by way of an application named JAR” and not a deposit scheme as defined by the BUDS Act.

The police case against Jar Gold Retail Pvt Ltd and its directors, Misbah Ashraf, Sandesh Nahar, Nishchay Babu Arkalgud, was registered initially by the Bengaluru police after a preliminary inquiry into the operations of the firm, following a referral by a Multi Disciplinary Team (MDT) comprising RBI, Income Tax (I-T), state revenue and police officials that has been set up for BUDS cases.

The MDT directed the Bengaluru police to “conduct a preliminary investigation into the Jar Gold Retail Private Limited and other financial fraud cases” in November last year. Following a preliminary probe, the Koramangala police registered an FIR on January 16 against the firm for allegedly violating the BUDS Act.

“The public who are attracted to the unregulated scheme opens their accounts in the firm and invests money through it and gets gold deposits in digital form in return. Real gold is shown in a digital form in the e-accounts of the customers and they can access it whenever they want,” states the Bengaluru police FIR in the case.

The business, which also offers points for referrals of investors, “is not registered with the relevant regulatory authority SEBI or any other authority”, says the FIR.

“According to the information provided by the said organisation and its directors, about 3.3 crore people have opened e-accounts and transact through their mobile application. They have collected about Rs 100 crore rupees from the public,” says the FIR.

The police complaint in the case has referred to an RBI alert of July 20, 2025, “which expressed doubts about the legality of the business being conducted by the company” and a SEBI public warning of November 8, 2025, that trading in digital/e-gold products is an unregulated business.

“The said company and its directors are offering the public the opportunity to invest in gold through a digital application, but it appears that they are conducting their business in an uncontrolled manner without obtaining permission or registration from the relevant regulatory authority, the Securities and Exchange Board of India (SEBI),” says the complaint.

“It appears that an attempt is being made to defraud about 3.3 crore people by convincing them that they can withdraw the money or sell the gold whenever they want from their accounts through the firm. It appears that they are receiving and investing more than Rs 100 crore and then not returning it,” the complaint states.

The CID unit of the Karnataka police, which was handed the investigations under the BUDS Act, has carried out searches at the properties of the firm and its owners and has seized the offices of Jar Gold Retail Pvt Ltd in Bengaluru.

“The company is operating on the lines of the I-Monetary Advisory (IMA) Pvt Ltd (an investment firm involved in a major ponzi scheme in Bengaluru a decade ago, where over Rs 3000 crore of deposits were defrauded) which ran investments schemes by claiming that the schemes do not fall under RBI norms for the non banking finance sector,” police sources said.

Jar Gold approaches HC over police action

Jar Gold Retail Pvt Ltd and one of its directors, Nischay Arkalgud, challenged the police probe of the gold investment business in a petition filed in the Karnataka HC on February 20.

A senior counsel who appeared for the firm in the HC on February 21 argued that the firm’s operations do not fall under the purview of the BUDS Act as claimed by the police.

“All money is collected through UPI. We pay Rs 15 crore as sales tax. We have 3 crore customers. We are not fly-by-night operators,” the senior counsel K G Raghavan argued while also indicating that the firm had a turnover of Rs 4000 crore in the last five years. “Not one customer has complained,” the counsel said while stating that the police action was illegal.

“I have 1,000 rupees and want to buy gold. Money can be transferred through UPI, and gold is bought and deposited physically in a third-party vault of a company called Brinks. They are a well-known and internationally reputed vault. Whenever the customer wants the gold, it will be given to him. If the customer does not want the gold, the money will be returned according to the prevailing gold rate when the money is sought,” the senior counsel said.

“There is no complaint from anyone about not returning money or giving gold. This is a fairly common practice among all jewellers. The jewellers block the gold at the current rate and give the jewellery at a later date. The customer benefits if the cost of gold goes higher at the time of delivery, and the shopkeeper benefits if the cost of gold drops at the time of delivery. The risk is with the customer,” the senior counsel said.

“This type of digital gold scheme is being done by everybody. They put physical gold in the Brinks vaults. The government is doing it through MMTC PAMP,” he said. He claimed that Jar Gold Retail was only a platform for trading the gold of Digital Gold India Pvt Ltd.

Jar is an “online micro saving and investment platform by way of an application named JAR. They entered into a distribution agreement with Digital Gold India Pvt. Ltd. to offer the sale of DGIPL gold on its platform. DGIPL offers digital gold products and distributes through a wide range of channel partners like Tanishq, Axis Bank, Tata Neu, Bajaj Finserv, Airtel Payments, Amazon, Flipkart, Phonepe and such other large players,” the senior counsel said.

Additional Special Public Prosecutor B N Jagadeesha, who appeared on behalf of the state, argued that the case had originated from alerts issued by SEBI and RBI.

“It is similar to the IMA case where RBI sent an alert to the police, but without proper verification, the police gave a clean chit to IMA. This led to the arrest of police officials. Based on the instruction from the RBI we have registered a case and conducted a raid,” the SPP said.

The Karnataka HC reserved its order in the case on February 21, while asking the CID not to arrest anyone unnecessarily till the verdict is announced. The court, while expressing apprehension “over larger implications on the public” from the digital gold scheme, also said that it would test the applicability of the BUDS Act in the case.