Mint Explainer: Why Karnataka’s case against Jar could test digital gold regulation

Because similar products are sold across the market, the case could shape how digital gold platforms are scrutinized in India. Mint explains the legal implications of the investigation and whether the BUDS Act can apply to such products.

The order also cites Sebi’s 8 November 2025 public caution that digital gold products sold on online platforms are neither notified as securities nor regulated as commodity derivatives. Karnataka’s police then took up the matter through a multi-disciplinary process involving RBI and other officials, who examined possible violations under the BUDS Act. That was followed by a preliminary enquiry and the registration of a first information report (FIR) at the Koramangala police station on 16 January 2026.

After the FIR was registered, Jar and its co-founders, Misbah Ashraf and Nishchay A.G. (chief executive officer), moved the Karnataka High Court to quash the case. But in an order reserved on 21 February and pronounced on 4 March, the court refused relief, holding that the allegations raised triable issues that could not be examined at the FIR stage and that the investigation must continue. It also said the BUDS Act cannot be ruled out at this stage merely because the product is structured as digital gold.

Lawyers, fintech executives and other industry participants told Mint the state’s use of the BUDS Act, and the High Court’s refusal to halt the probe at the threshold have deepened concern across the digital gold ecosystem.

That could have a chilling effect on platforms operating in the regulatory grey zone between commerce, savings and investment, legal and industry experts said.

Lawyers tracking the matter said the BUDS Act would apply only if authorities can show that Jar was effectively collecting money as a deposit rather than merely facilitating the purchase of gold. Raheel Patel, partner at Gandhi Law Associates, said digital gold platforms usually position themselves as enabling users to buy fractional gold through partners, making the arrangement look more like a sale of goods or a commodity transaction than deposit mobilization.

“If funds were immediately used to purchase allocated gold, the case may look more like a consumer dispute around pricing or delivery than a BUDS violation,” Patel said.

He added that Jar’s strongest defence would be that it never promised returns or interest and merely facilitated gold purchases.

“If the gold purchase was not instantaneous, or if redemption depended on internal pricing rather than real market rates, authorities could argue that the structure resembles a deposit scheme disguised as digital gold,” Patel said.

Tushar Agarwal, founder and managing partner at C.L.A.P. Juris, Advocates & Solicitors, said that, regardless of the ‘digital gold’ label, regulators would examine whether the model effectively functions as a public deposit promising future returns.

In response to Mint’s queries, the company said its app facilitates the purchase and sale of gold as a commercial transaction. It added that, with customer consent, the gold is stored with Brinks, a third-party vaulting firm, and is independently audited and insured. Customers can sell, redeem, seek physical delivery, or convert the gold into jewellery at any time, the company said.

The company said that, as the matter is sub judice, it would not be appropriate to comment further. It added that it will continue to cooperate with the authorities and address any issues through the appropriate legal process.

“The lack of a dedicated regulatory framework for digital gold is precisely what creates this grey zone,” said Patel. Court-established principles for these products could trigger a market-wide fallout, impacting custody, disclosures, and consumer protection far beyond Jar.

Agarwal said the matter could also influence how regulators and enforcement agencies divide oversight of digital gold products. “The case could have wider implications. Digital gold has grown rapidly but remains largely unregulated,” he added. While the state can invoke the BUDS Act for alleged deposit schemes, the activity also overlaps with RBI and Sebi's domains if the product resembles an investment instrument, he said.

Separately, an industry executive tracking the sector said Jar’s operating structure is not unique and broadly mirrors the model used by several digital gold distributors in India. Major consumer platforms such as Paytm, PhonePe, Google Pay and Amazon Pay, along with jewellery brand Tanishq, have offered digital gold through partnerships with providers such as SafeGold and Augmont.

“If the structure used by Jar is now brought under legal scrutiny, similar questions could arise for other platforms operating on comparable digital gold models,” the industry executive said.