The Karnataka High Court has declined to interfere with a criminal investigation initiated against Jar Gold Retail Private Limited, the company behind the popular JAR digital gold investment app, and its director Nishchay Babu Arkalgud.
Justice M. Nagaprasanna, while hearing a writ petition filed by the company and its director, ruled that the allegations raised by the police involve serious questions that must be examined through investigation. The Court therefore refused to quash the FIR registered under the Sections 21(1) and 21(2) of Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act).
The Court emphasized that quashing criminal proceedings at the early stage of investigation is an exception and should not be exercised when factual disputes require detailed examination.
Background of the Case
The case arose after the Koramangala Police Station in Bengaluru registered Crime No. 25 of 2026 based on a suo motu complaint filed by a police officer.
The FIR alleged that Jar Gold Retail Private Limited, along with its directors, was operating a digital gold investment model through its mobile application “JAR”. According to the complaint, the platform allowed users to invest small amounts-sometimes as low as ₹10-towards digital gold purchases.
The police claimed that:
- The company was collecting funds from the public through the app.
- Customers were shown digital gold balances linked to their accounts.
- Investors were encouraged to invite others and earn referral bonuses reportedly ranging between 30% and 40%.
Authorities suspected that the structure of the scheme could amount to accepting deposits from the public without regulatory approval, thereby potentially violating provisions of the BUDS Act, 2019.
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Following the FIR, police conducted searches at company offices and residences of its directors and seized documents, electronic devices, and financial records.
The company subsequently approached the High Court seeking quashing of the FIR and all consequential proceedings.
Senior Advocate K.G. Raghavan, appearing for the petitioners, argued that the company was engaged in a legitimate e-commerce business involving the sale of physical gold bullion.
According to the company:
- Each customer transaction results in an actual purchase of gold.
- Digital records correspond to physical gold stored in secure vaults maintained by a third-party custodian.
- Ownership of the gold is transferred to customers immediately after purchase.
- Payments are made through legitimate electronic channels such as UPI and online transfers.
The petitioners further contended that:
- The company does not accept deposits from investors.
- No customer has filed a complaint alleging loss of money.
- The FIR was triggered by a third-party email complaint, not by any investor.
They therefore argued that the BUDS Act could not apply, as the transactions were merely commercial sales of goods and not deposit-taking activities.
The State of Karnataka opposed the petition and urged the Court to allow the investigation to continue.
The prosecution argued that:
- The platform had collected funds from millions of users.
- The business reportedly handled transactions worth nearly ₹4,000 crore.
- Neither the Reserve Bank of India (RBI) nor the Securities and Exchange Board of India (SEBI) regulates the platform’s digital gold offerings.
The State further submitted that unregulated schemes involving public funds could lead to massive financial fraud if not investigated in time.
It therefore argued that halting the investigation prematurely could jeopardize investor protection.
Justice Nagaprasanna examined the regulatory background surrounding digital gold platforms and referred to communications from regulatory authorities.
The Court noted that:
- An RBI communication had flagged concerns that the JAR app accepted investments in digital gold that were outside RBI’s regulatory framework.
- SEBI had also issued a public caution warning investors that digital gold products offered by certain online platforms are not regulated by SEBI and may expose investors to risks.
The judge observed that several complaints and online reviews had raised doubts about the functioning of the platform, including allegations that users faced difficulties withdrawing funds or receiving physical gold.
The Court stressed that the definition of “deposit” under the BUDS Act is broad and focuses on the economic substance of the transaction rather than its form.
In a notable observation, the Court stated that financial fraud today often appears in sophisticated digital forms rather than traditional cash deposits.
The judgment emphasized:
“Law is concerned not with the cosmetic garb in which a transaction is clothed, but with its intrinsic character and economic substance.”
After examining the materials placed on record, the High Court concluded that the case involved serious and disputed questions of fact.
The Court held that:
- Determining whether the company’s operations amount to an unregulated deposit scheme requires a full investigation.
- Courts should not evaluate disputed evidence or conduct a mini-trial at the stage of quashing an FIR.
Relying on Supreme Court precedents regarding the limited scope of judicial intervention during investigations, the Court ruled that interfering at this stage could stifle legitimate inquiry.
Accordingly, the High Court refused to quash the FIR and permitted the police investigation to continue.
Case Title: Nishchay Babu Arkalgud & Jar Gold Retail Pvt. Ltd. v. State of Karnataka
Case Number: Writ Petition No. 5968 of 2026
Decision Date: 4 March 2026
