Jar Gold case: Karnataka High Court rejects startup’s plea to quash BUDS Act probe

The five-year-old startup firm, which has received over $63 million in VC funding and was in line for another $100 million in investments, has over three crore investors across India and a turnover of over Rs 4,000 crore in five years.

The firm challenged a suo motu FIR filed by the Bengaluru police on January 16, under the Banning of Unregulated Deposit Schemes (BUDS) Act and later transferred to the CID. The CID seized properties of the firm following the FIR registered by the Kormanagala police in south Bengaluru.

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.

What the FIR against Jar Gold says

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 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

“The public who are attracted to the unregulated scheme open their accounts in the firm, 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,” 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 company’s business, and to a SEBI public warning of November 8, 2025, stating 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.

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,” senior counsel K G Raghavan argued while also indicating that the firm had a turnover of Rs 4000 crore in the last five years.

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.

The Karnataka HC had 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 had expressed apprehension “over larger implications on the public” from the digital gold scheme.

Directors of startup granted anticipatory bail

The directors of the startup, Sandesh Nahar, Misbah Ashraf and Nishchay Babu Arkalgud, were meanwhile granted anticipatory bail in the case by a lower court on February 24.

The directors argued that the business does not fall under SEBI’s purview and that no RBI clearance is required. The directors 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.

“In view of the submissions made of Learned Counsel, it is seen that there is a real apprehension of immediate arrest made out by the Petitioners and also prima facie at this stage there is a doubt about the applicability of the BUDS Act to the case,” the district court ruled on February 24 while granting ex parte anticipatory bail to the directors of Jar Gold.

The CID filed its objections to the anticipatory bail plea Tuesday.