Digital Gold Transactions Not Outside Scope Of BUDS Act Due To Lack Of SEBI/RBI Regulation: Karnataka High Court

The Karnataka High Court has refused to quash criminal proceedings against Jar Gold Retail Private Limited and its director over allegations that its digital gold platform operates as an unregulated deposit scheme.

The Court observed that merely because the purchase or storage of gold is not regulated by bodies such as the Securities and Exchange Board of India (SEBI) or the Reserve Bank of India (RBI), such transactions cannot be treated as falling outside the scope of the Banning of Unregulated Deposit Schemes Act, 2019.

A coram of Justice M Nagaprasanna observed that merely because the purchase or storage of gold is not expressly regulated by SEBI or the RBI, such transactions cannot be said to fall outside the scope of the statute.

“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,” the Court held.

The company and its director had approached the High Court challenging an FIR registered by the Koramangala Police Station. The FIR alleged the operation of an unregulated deposit scheme and was registered on a suo motu complaint by the police sub-inspector.

The company operates a mobile application and online platform through which customers can purchase gold. The platform enables customers to purchase gold starting from Rs 10.

The application allows customers to purchase, seek delivery, and sell back gold at their discretion.

According to the company, each transaction is equivalent to the sale of physical gold and is duly invoiced. It contended that ownership is transferred to customers and the corresponding gold is stored in an independent third-party vault.

The company argued that it does not deal with deposits. It also argued that no depositor had complained of losing money in the last five years.

Following police notices seeking details of its business model, searches were conducted on February 18, 2026 at the company's office and at the residences of its directors. Bank accounts were also frozen following the registration of the FIR.

The FIR and consequential actions were challenged before the High Court.

The Court observed that the material on record reveals serious allegations. These include assertions that physical gold was not traceable when customers sought delivery despite assurances.

It also noted that searches allegedly recovered gold bearing the company's branding from the premises of its office bearers.

“With all this staring, 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,” it held.

Rejecting the company's argument that the transactions could not amount to deposits, the Court observed:

“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.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 further observed that the BUDS Act is a remedial and protective legislation enacted to prevent 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 in the face of evolving financial stratagems and defeat the very mischief it was designed to suppress. Therefore, a purposive, expansive and pragmatic interpretation alone would advance the object of the enactment and uphold the protective mantle to extend over unsuspecting deposits."

Accordingly, the petition was dismissed. The Court clarified that its observations are confined to the present proceedings.

For Petitioners: Senior Advocate K.G Raghavan and Advocate P. Chinnappa

For Respondents: Advocate B.N Jagadeesha, Addl SPP