"Digital Gold Platform Cannot Escape Law Merely By 'Cosmetic Garb' Of Transactions": Karnataka HC Refuses To Quash FIR Against JAR App

The Karnataka High Court has refused to quash an FIR registered against the online gold platform Jar Gold and its directors for offences under Sections 21(1) and 21(2) of the Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act).

The single-judge bench of Justice M. Nagaprasanna, while dismissing the application filed by Jar Gold Retail Private Limited and its Director Nishchay Babu Arkalgud, noted that the economic substance of a transaction, and not its 'cosmetic garb', will determine whether it contravenes the law.

"…Law is concerned not with the cosmetic garb in which a transaction is clothed, but with its intrinsic character and its economic substance," , the court reflected on the ever-changing landscape of modern financial crimes in the online realm.

“….It now assumes a subtler and more sophisticated forms – commodities, digital assets, gold linked assurances and other alluring constructs designed to circumvent regulatory vigilance…”, the court opined about the rapid shift from cash deposits to novel forms of currency in cyber financial frauds.

The court noted that there are several complaints against the company from members of the public, as evident from its online presence. The court has also expressed caution about the proliferating but unregulated 'digital gold' industry.

“…The evolution of digital gold, as a commercial concept, is not in dispute. However, the materials on record disclose that serious allegations have surfaced, including assertions that physical gold could not be traced when demanded, notwithstanding the assurances to the contrary. Searches have allegedly yielded gold bearing the Company's branding at the premises of the office bearers…”, the court observed.

The above observation of the court must be read along with JAR's argument that it has an agreement with Brinks India Private Limited for storing gold in the vaults of the latter.

“…this Court cannot lend its protective hands to the petitioners and obliterate the crime in its incipient stage. 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 court reasoned that the allegations against the petitioners, if true, could transform into a huge financial problem.

Senior Advocate K.G. Raghavan, appearing for the petitioners, argued that the company only operates an e-commerce platform facilitating the purchase and sale of physical gold. They submitted that every transaction resulted in the actual physical purchase of gold, kept in the vaults of Brinks India Pvt Ltd. The money received from the customers through the online platform 'JAR' can't be deemed as 'deposits'. The transactions could be brought under the umbrella of 'payments' in lieu of gold, and hence BUDS Act won't apply, added the counsel.

Earlier, based on a tip-off, the Market Intelligence Division of the Reserve Bank of India had inspected the available address of JAR Gold at Bengaluru. According to the RBI, the gold was stored in digital form in an account maintained by JAR, which does not come under the RBI's jurisdictional regulations. Accordingly, RBI sent a mail communication to the state of Karnataka, among others, by highlighting the legally unsound, behaviourally manipulative operations of the App, along with information about the 30%-40% bonus given for customer referrals, indicating an 'unregulated deposit' scheme.

SEBI had also issued a public notice on 08.11.2025, warning the public about the difference between SEBI-regulated gold products and digital gold offered by online platforms.

Later, Crime No.25 of 2026 was registered by the Koramangala Police Station at the behest of a suo motu complaint by the state based on a third-party e-mail.

JAR company, registered under RoC, Bengaluru, started its mobile application and website in 2021, enabling the public to purchase gold digitally. The gold purchased, as per the company, can be purportedly delivered physically or sold back to the company itself. The business of the company has now reached a staggering figure of 4000 crores as per the petitioner company.

“The provisions of the Act define “deposit” in expansive terms and the argument that the statute must be construed narrowly, so as to exclude digital or gold backed arrangements stands repelled…”, the court noted about Section 3 of the BUDS Act. A narrow interpretation of the Act would render it futile 'in the face of evolving financial stratagems and defeat the very mischief it was designed to suppress', the court clarified.

Justice M. Nagaprasanna also gave a caveat that the observations made by the court are limited to the plea under Section 528 BNSS; it wouldn't bind the petitioners when the case is adjudged before the trial court.

Case Title: Nishchay Babu Arkalgud & Anr. vs. State of Karnataka & Anr.

Case Number: Writ Petition No. 5968 of 2026

Click Here To Read/ Download Order