Customer complaints, unregulated nature of deposits: Why Karnataka HC rejected Bengaluru startup Jar Gold’s plea against police probe

“The submission that the Act stands uninvoked in the present circumstances is entirely bereft of merit and cannot be countenanced. The absence of express regulatory supervision by bodies such as SEBI or the RBI over the purchase or storage of gold, be it in tangible form or in its digital avatar, does not confer upon such transactions a sanctuary beyond the reach of the statute,” Justice M Nagaprasanna said in his 35-page ruling.

While Jar Gold argued that no customer had complained to the police about not receiving gold or money invested in digital gold through the firm and that the Bengaluru police had registered a suo motu case after a preliminary probe, the high court referred to online complaints against the firm.

“The evolution of digital gold, as a commercial concept, is not in dispute. However, the materials on record disclose that serious allegations are surfaced, including assertions that physical gold could not be traced when demanded, notwithstanding the assurances to the contrary,” the high court observed.

The bench also pointed out that the gold purchased in lieu of investments by customers of the startup firm—and claimed to be stored in a physical/digital form—was not being kept with any authorised firm that comes under the purview of RBI regulations

“There are several other observations by several customers about purported fraud in the app. With all the communications, the police ostensibly cannot keep quiet, as every citizen is involved in this and it has a potential of growing up into a huge problem. Therefore, suo motu complaint is registered by the Koramangala police station,” the high court observed.

Given the prima facie facts of the case “the court cannot lend its protective hands to the petitioners and obliterate the crime in its incipient stage,” the high court said. “Investigation in such cases is imperative, as the investors have already made hue and cry through communications between them that there is no gold and no money,” the high court added.

Jar Gold’s argument that deposits are not in the form of any currency but in the form of gold, physical or digital, cannot be used to claim that the BUDS Act is not attracted by the activities of the firm, the high court said.

“Law is concerned not with the cosmetic garb in which a transaction is clothed, but with its intrinsic character and its economic substance. In the rapidly mutating landscape of cyber enabled financial frauds, deception no longer adheres to the crude paradigm of cash deposits,” Justice Nagaprasanna said.

Cash has attained sophisticated forms like commodities, digital assets, gold linked assurances and “other alluring constructs designed to circumvent regulatory vigilance”, the high court said.

“The BUDS Act, being a remedial and protective legislation, was enacted precisely to arrest such ingenuity in evasion. To confine the expression money within the narrow confines of physical currency, would become a pedantic and myopic construction, which would render the statute otiose,” the single-judge bench said.

The BUDS Act must be interpreted in “a purposive, expansive and pragmatic” way in the light of the changing nature of money and this alone “would advance the object of the enactment and uphold the protective mantle to extend over unsuspecting deposits”, the high court said.

“Even otherwise, what is now challenged is an FIR. The reason for challenge is the crime not fitting itself in the definition of the word deposit. It is trite law that FIR is not an encyclopaedia of offences, it is only to trigger investigation. Different offences may come in while filing the final report,” the high court observed.

The case against Jar Gold

Jar Gold and its director, Nishchay Arkalgud, filed a plea in the high court two weeks ago, seeking that a police case registered on January 16 against the firm and its directors be quashed.

The operations of the firm came under legal scrutiny following an alert last year by the RBI’s market surveillance unit on the legality of the digital gold business and a SEBI alert that digital/e-gold trading is unregulated.

The five-year-old startup—it has received over $63 million in VC funding and was in line for another $100 million in investments—has over 3 crore subscribers from across India and a turnover of over Rs 4,000 crore in five years.

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, IT, state revenue and police officials 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.

“The public who are attracted to the unregulated scheme open their accounts in the firm and invest money through it and get 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,” the FIR states.

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

“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 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 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…SEBI,” says the complaint.

What Jar Gold argued in court

The firm challenged the FIR, which was later transferred to the Criminal Investigation Department (CID) of the Karnataka Police. On February 18, the CID seized properties of the firm as part of the probe.

The firm told the Karnataka High Court 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.

Senior counsel K G Raghavan, who appeared for the firm in the high court on February 21, argued that its 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 argued while also indicating that the firm had a turnover of Rs 4,000 crore in the last five years. “Not one customer has complained,” the counsel said, while stating that the police action was illegal.

“I have Rs 1,000 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,” Raghavan 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 time of delivery. The risk is with the customer,” he added.

“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 for offering 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 cases against police officials. Based on the instruction from the RBI, we have registered a case and conducted a raid,” the SPP said. He argued that the deposits made by the public with Jar Gold Retail Pvt Ltd were unregulated.

The Karnataka High Court had reserved its order in the case on February 21 while asking the CID not to unnecessarily arrest anyone till the verdict is announced. The court had expressed apprehension “over larger implications on the public” from the digital gold scheme.

Directors granted anticipatory bail

A lower court on February 24 granted anticipatory bail to Jar Gold’s directors Sandesh Nahar, Misbah Ashraf and Nishchay Babu Arkalgud. They had argued that the business does not come under the purview of SEBI and that no clearance from the RBI was required. They also argued that investments in the digital gold scheme were exempt from the BUDS Act since credit taken by a buyer from a seller of property is exempt from the BUDS Act.

The CID filed its objections to the anticipatory bail plea on Tuesday. The startup firm is likely to approach the Supreme Court for relief over the coming days.