Mumbai: A public interest litigation (PIL) filed before the Nagpur bench of the Bombay high court questions the legality of gold purchase plans being offered by leading jewellers to attract customers, likening them to deposit-taking schemes that have no accountability.

The petition filed by Nagpur-based activist Sandeep Badriprasad Agrawal names popular gold-saving schemes such as Golden Harvest being offered by Tanishq, Kalpavruksha Plan-Super by Tribhovandas Bhimji Zaveri Ltd, Gold and Diamond scheme by Gitanjali Group and Jewels for Less by PC Jeweller Ltd and alleges that such offers are “illegal".

The petition was filed in April and has been heard twice since then.The next hearing is due in September.

The petition has made the Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI), the commissioner of Nagpur police and Union of India parties to the case.

Typically, a gold saving scheme collects monthly instalments from customers for at least 11 months, after which the investor gets some benefits (concessions or discounts) on the principal, which can be redeemed against gold jewellery sold by the firm in the 12th month.

For instance, the Golden Harvest scheme by Tanishq, a unit of Tata group Titan Industries Ltd, which has at least 1.5 million customers, requires the customer to pay advance instalments for 11 months. The 12th month instalment is paid by Tanishq and the accumulated amount can be redeemed against gold jewellery by the customer. The minimum monthly instalment amount for Golden Harvest is 500.

The PIL contends that the schemes involve collection of money from the public at large and that there is “no control" over such schemes and “no accountability" in case the scheme ends in failure.

At present, CISs are regulated by Sebi while RBI regulates non-banking finance companies and the state governments oversee chit funds.

The PIL has sought an enquiry into gold saving schemes, alleging that they are no different from deposit-taking schemes. The PIL also alleges that there is “no mechanism (to recover money) if any jewellery shop owner or company has gone into liquidation" and such schemes “need to be banned".

While RBI, Sebi and the police have responded to an earlier Right to Information (RTI) application filed by Agrawal stating that the schemes do not fall under their purview, the PIL has sought a fresh enquiry into the schemes by the regulators.

RBI has, however, maintained that since Tanishq and similar jewellery firms are not registered with it as non-banking finance companies, the schemes do not fall under its purview. The banking regulator clarified that schemes like Golden Harvest “do not amount to acceptance of deposits".

An email sent to Sebi did not elicit a response.

According to two people familiar with the matter, Sebi has a divided opinion on the issue. Both of them did not wish to be quoted as the matter is subjudice.

In an earlier response to Agarwal’s RTI query on 18 June 2012, Sebi had said that “only those companies which raise money by way of issue of equity and debt from 50 or more persons come under its ambit.

Collective investment schemes also fall under the ambit of Sebi and Union of India. Gold saving schemes do not fall under any of the categories; hence they are outside the regulatory purview of Sebi and Union of India."

However, since then there have been changes in the regulations.

In July, Sebi got powers to regulate any pooling of funds under an investment contract involving a corpus of at least 100 crore.

Sebi got the powers following the collapse of the West Bengal-based Saradha Group, which collected deposits from 1.7 million people.

According to a company spokesperson, PC Jewellers has a liability of about 100 crore with respect to advances received under its Jewels for Less scheme.

Most jewellery firms are using the advances for their working capital requirements. They are disputing the PIL on grounds that the schemes run by them are structured merely to help the customers plan their gold purchase in advance and they should not be equated with CISs.

“We are not forcing the customers into the schemes. They enrol for the scheme on the basis of the trust they have developed in us. The schemes are merely an advance payment made by the customer," said Sanjeev Bhatia, president and chief financial officer at PC Jewellers.

Bhatia said that a provision had been made for the advances received under the schemes. “In case we are asked to wind up the scheme, we will have no issues," he said. PC Jewellers has 36 branches and about 54,000 customers.

Abhishek Gupta, president of Gitanjali Group, also said currently there is no authority to which details of the schemes have to be reported. “But we are open to having them reviewed by any legally constituted authority that the government or courts may appoint," Gupta said.

The Tanishq spokesperson was not available for comment.

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