Even as most people across the country and especially in Western India were celebrating on the occasion of Dhanteras, which precedes Diwali, hundreds of families residing in Mumbai and Pune were reeling under the shock of losing their money. They had been saving in a scheme that required investors to put in money every month for purchasing gold, which has been hovering around Rs 39,000 per gram range since end September. Near a fourth of all gold purchases happens through gold schemes offered by jewellers.

Joby N (name changed on request) walked into the store of Goodwin Jewellers to buy jewellery in October 2017. “Since most staff members were Malayalees, I was amazed at the number of common friends that the sales staff handling our purchase had back in our native village. They informed us about the savings scheme, wherein we would have to accumulate money for 12 months and two months’ worth instalment amount would be offered by the jeweller. I didn’t sense anything illegal in it.”

The lavish Vashi store of Goodwin Jewellers had been inaugurated as recently as September 2017 with much fanfare by actor Anil Kapoor, and stationed a decked-up life-size elephant figurine at the store’s door to catch more eyeballs.

Due to the insistence of his wife, Joby opted for the two-year scheme and handed over cash worth Rs 5,000 each month to a staff member who picked the same from his residence and offered a receipt in return. “We had paid Rs 1.2 lakh and would have received 4 instalments from the jeweller. So, in all, we would have made Rs 1.4 lakh worth purchase this Diwali as our maturity was scheduled on October 23, 2019. But the store was closed and the sales representative who came to collect money too was untraceable,” said Joby, who later lodged a complaint against Goodwin Jewellers in the APMC Police Station, Vashi. He was told that the Economic Offences Wing would take up the matter after the complaints in Dombivali, Thane and other areas are taken into account.

The insatiable love for gold

Indians love their jewellery more than they do bars and coins. According to the World Gold Council, consumer demand for jewellery stood at 168.6 tonnes, as against bar and coin demand of 44.5 tonnes in the June 2019 quarter.

The staff were all Malayali and wooed many for multi-year gold jewellery schemes.  Thakurli resident Rajesh Parasuraman, 40, was a third-time investor in gold. He says, “Our regular jeweller in Dombivali seemed to be pricing its jewels on the higher side and so many of our relatives started looking for options. Goodwin Jewellers had a good collection of our traditional designs and hence I opted for the scheme, way back in 2015. The owner would often visit the Dombivali store himself and it didn’t seem like the group was facing any issue with payments.”

Parasuraman invested Rs 2,000 per month for 20 months and received the jeweller’s contribution of four months’ amount, to purchase gold jewellery in May 2017. “The family seemed to like the idea as a one-time purchase of gold jewellery is very expensive. I again started investing Rs 1,000 for the second time. But didn’t accumulate much as I had halved the instalment and the accumulated amount was too low for any jewellery purchase. So, the third time I again initiated a deposit of Rs 2,000 in May 2019,” he says.

While most jewellers restricted the redemption of gold purchase plan to “Jewellery only,” Goodwin Jewellers offered gold coins or cash at the end of the period.

Two days after the Goodwin Jewellers chain shut its stores across Maharashtra and Kerala, another Ghatkopar-based gold retailer, Rasiklal Sankalchand Jewellers (RSJ) shut its store just after Diwali on October 28 and 29.

These incidents shook the confidence of many others who have parked money with different jewellers across the country to purchase jewellery at a later date. “A few customers came into to check on the money they had invested. They can’t compare us with another jeweller. Our reputation is much better,” says Bachhraj Bamalwa, who owns Nemichand Bamalwa and sons, a jewellery store in Kolkata. Bamalwa is also the former chairman of All India Gems and Jewellery Federation.

Packages as bonus return schemes

But why would people use these schemes offered by jewellers instead of just purchasing the expensive jewellery using a credit card and converting it into a regular EMI or any other finance scheme offered by non-banking finance institutions?

That’s because a gold savings scheme is much more than just an instalment payment plan. Jewellers offered returns in terms of waiver/discount worth the last month’s instalment – in the case of Goodwin Jewellers, the last two months’ instalment was offered as “bonus.”

Benefits in terms of lower making charges were also clubbed with these schemes. PNG Jewellers offers a 10 per cent discount on making charges under its Swarna Poornima Scheme.

That apart, jewellers have also been offering gold price fluctuation protection in the instalment schemes. “When you enrol into the scheme, we make you a member and as a member you get the best gold price and making charge offer throughout the year,” said a staff of Tribhovandas Bhimji Zaveri, when enquired.

“You can pay any time during the month and not necessarily on the same date. Even if you miss any instalment, you can restart the plan again by paying the missed instalment and one additional instalment,” the staff member was quick to add.

However, some jewellers have an escalation clause that increases the monthly amount by 0.25 per cent if the buyer fails to pay the amount within the time limit.

While credit card bills would reflect the gold purchase, jewellers are readily offering jewellery purchases against cash, debit or credit cards transactions, post-dated cheques without getting into a lot of paper work towards know-your-customer (KYC) procedures or time-consuming signatures and several places.

“My wife just signed one document to enrol into the scheme. The staff person would come home to collect the instalment money and I hadn’t seen the store again in the past two years,” said Joby, who lost Rs 1.4 lakh in the scheme.

But jewellers have been introducing clauses to dissuade purchases under the scheme prior to the maturity date (or early withdrawals, if you compare this to a saving scheme), by way of curtailing the discount offered. “In case individuals choose to discontinue within a period of seven months of enrolment from, say, a 12-month scheme, they will not be eligible for the ‘discount on purchase’ option. In case they discontinue anytime between the eighth and 10th month, members can claim a discount that is equal to 60 per cent of the instalment amount of one month,” says a clause presented in the terms and conditions section of GRT Jewellers.

Are these deposits?

While jewellers have shunned using terms such as deposits or savings schemes, words such as “Easy Pay Plan”, “Instalment Scheme”, “Flexi Payment” or “Advances against sales” are being used to circumvent the various regulations governing deposit-taking schemes.

The Banning of Unregulated Deposits bill, 2019, resulted in several changes. As soon as the norms were announced in February 2019, nearly all the jewellers suspended the schemes for two weeks.

But the schemes were again served as ‘old wine in a new bottle.’ The changes they made was restricting the instalment period to less than 12 months and ensuring the “discount” they offered in terms of last instalment waiver was less than 12 per cent return.

“We made changes in the scheme after the Unregulated Deposits Act came in. Now the scheme period is restricted to 12 months,” added Bamalwa.

Explaining why the schemes wouldn’t qualify as deposits, Rajiv Popley, Director Popley Group, says, “Technically, the money is being paid as advances against purchase and the maturity is within 12 months. Any kind of retailer can offer a discount to the prospective client for a prospective purchase. The retailer assures a futuristic sale or is pre-booking a sale, which would happen in another year or a time frame of say six months.”

There are no returns made under the scheme because, “The last instalment that is being added to the scheme by the jeweller is the discount that is earned. Discounts are allowed in a normal scenario, towards the purchase. The incentive for the purchase is the discount and it cannot be termed as interest,” Popley adds.

But the notification of the Banning of Unregulated Deposits, 2019, wasn’t the first time these schemes were suspended. In May 2014, SEBI had raised eyebrows on the Satyug gold scheme, in which one could get a 37 per cent discount for booking gold and taking delivery two years later. Following SEBI’s Orders, several jewellers suspended their gold accumulation/savings schemes.

They resurfaced again after compliance with The Companies Act, 2013, which asked them to offer deposits as a percentage of their share capital and also preserve a minimum 15 per cent of the amount maturing in the current and following financial years in a separate account.

Says Sandeep Kulhalli, Sr.Vice President-Retail & Marketing-Jewellery Division at Titan Ltd., “The Gold Harvest programme (of Tanishq) is being operated as per the permissible limits. We cannot offer it as an unending scheme as the deposits have to be only up to 25 per cent of the share capital as per the Companies Act, 2013. Also, customers have to be careful; the Banning of Unregulated Deposits Act, 2019 specifies that the discount or the returns that can be offered need to be below 12 per cent as per the regulations. The pay-out can be gold jewellery or cash.”

Every time a new regulation came into the picture or there was a threat, the jewellers would have suspended the schemes to understand the legal implications of the new rules as and when they were formed and then resumed them after due compliance.

Who regulates Gold Schemes?

While the Reserve Bank of India has stayed mum on the matter, an official at the Consumer Education and Protection Department of Reserve Bank of India, said, “We haven’t received any complaint regarding the jewellery scheme and hence we haven’t taken any action.”

There have been talks of the gold schemes run by jewellers coming under the SEBI scanner since 2016. But the regulator is yet to step in for protecting investors. An email sent to SEBI remained unanswered.

Gold schemes would come under the purview of the SEBI if it were a “collective investment scheme”, which would consist of: (a) collection of contributions / investments to invest in an asset; (b) the intention of contributing should be to earn profits from it; (c) such pooled resources are to be managed by a person; and (d) contributors to have no say in the management of the asset.

“Typically, orders from SEBI would be in the nature of winding up the scheme, and this would not mean that the investor would get his money back.  Often such an order would lead to a rush to sell whatever is on hand and a fire-side sale with lower sale value,” says a lawyer who did not wish to be named.

Chartered Accountant Paras Savla says, “The deposits taken by jewellers would not be considered as collective investment, as they are merely advances taken against sale. But the jeweller would have to report to MCA regarding the sales.”

Titan, which operates the Tanishq brand, mentioned in its annual report that it had seven lakh subscribers to the scheme around April 1, 2014, when the new rules came into play. In the year 2018-19, the company has accepted Rs 2,175 crore under the deposits. Another listed Jeweller Thangamayil Jewellery Ltd. disclosed that it had around 1400 depositors, having an outstanding deposit of Rs 4,779.77 lakh.

Additional reporting requirement

Though three new Sections were introduced in the Companies Act, 2013, which notified the rules for companies taking deposits – except Banks and NBFCs regulated by the RBI – some jewellers didn’t report the money received under gold instalment schemes as deposits, since they termed these “advance against sale.”

Interestingly, the Ministry of Corporate Affairs had, towards the end of January 2019, issued an amendment asking companies to report amounts that are not technically categorised as “deposits.” While the move and its intent were questioned at that point in time, the case of jewellers not honouring the money collected from customers as advances would justify the additional reporting requirement, which was made effective from January 22, 2019.

Such amounts other than deposits would include bank loans, advance from customers, loans from group entities, non-convertible debentures (NCDs), compulsory convertible debentures (CCDs), shares, share warrants, and commercial papers.

This was essential, as the annual reports of listed jewellers typically used to state under the head ‘deposits,’ the following: “During the year under review your Company has not accepted or invited any fixed deposits from the public and there were no outstanding fixed deposits from the public as on the Balance Sheet date. Your Company has not accepted deposit from the public falling within the ambit of Section 73 of the Companies Act, 2013 and The Companies (Acceptance of Deposits) Rules, 2014.” After the January 2019 amendment, listed jewellers would need to present a truer picture of the deposits it would have taken from the public.

This is true of jewellers who have been running easy gold payment plans, offering advances against prospective purchases.

However, current complaints in the matter of Goodwin Jewellers have been booked by the Police under The Maharashtra Protection Of Interest Of Depositors (in Financial Establishments) Act, 1999 because most of the cases have been registered in Maharashtra.

In fact, the origin of investors’ and depositors’ laws enacted by state governments can be traced back to gold schemes. “Pressing state-level depositor-protection laws into service has been controversial.  Originally, the state depositor protection law came into play in Tamil Nadu, which was in fact aimed at dealing with gold schemes,” states Somsekhar Sundaresan, Advocate and Independent Legal Counsel, who has been handling the various financial cases including the recent one involving Chanda Kochhar, former MD and CEO of ICICI Bank.

In the current form, no regulator has any regulatory jurisdiction over the investment or payment plans offered by jewellers, except for the Ministry of Corporate Affairs.

“Though there are several laws, there hasn’t been a clear demarcation of areas of regulatory and legal implementation, which has led some companies becoming negligent. There is regulatory overlap in several areas concerning retail depositors. The implementation areas of state and central governments too have created an ambiguous situation in matters,” states another legal expert.

Jewellers too detest any additional compliance burden and have been contesting that they are already regulated as per the retailers’ rule book.

“I feel that if refunds are offered as cash, customers should be wary. But when the customer is planning a purchase, the scheme is similar to the EMI format. It is similar to the retailers that offer gift vouchers to prompt a prospective sale or Sodexo meal vouchers, which too build up to a high value. No additional regulations are needed as they all fall under the same format,” said Popley, when asked whether jewellers should be brought under any set of financial regulations as lay investors’ money is involved.

What do investors do?

Investors need to understand the demarcation of regulated and unregulated entities before handing them their hard-earned money in the lure of attractive interest or returns.

“Investors too are to be blamed for investing their money without understanding the contingent liability of a jeweller or a company. One should always assess the contingent liability, brand value and stability of a company before investing. Whenever there is a contingent liability, including loans, GST, VAT, etc., any form of funds under the companies accounts would be used up first to meet the contingent liability (loans),” says Abhishek Rastogi, partner at Khaitan & Co.

Apurva Ganesan, 53, residing in Mira Road is one investor who invested all the retirement savings in Goodwin Jewellers scheme, risking earnings of a lifetime. She is one of the 813 complainants in the Goodwin Jewellers case.

“If there is any scheme that has no regulations, one has to stay away. People who run after higher returns have to start learning. There is a tendency of being prone to these kind of things and they say to themselves that I will be more careful later. But at some stage, we have to realise that making costly financial mistakes and losing money is not the way to learn. The concerned regulator has to be proactive. But the fault is of the depositors, who are always looking for something extra,” warns Hemant Rustagi, Founder/Director at Wiseinvest Advisors.

Easy ways to buy the yellow metal

People would earn better returns in fixed and recurring deposits instead and other modes of investment can be used to save the money for purchasing gold.

Rustagi adds, “While there are pros and cons of buying gold, once you have made up your mind to buy gold, there are better ways of doing so. There is no regulation as such for these kinds of schemes run by gold jewellers, which offer one month additional instalment or discount. You would earn similar returns through a liquid fund or FD. Maybe you would get 1-1.5 per cent less, but at least there is assurance of your principal being protected.”

While accumulating gold, Rustagi says one has to look at the personal use of gold. “Gold Sovereign Bonds give you an interest as well if you are looking for gold only as an investment. The units are also offered at a discount for retail investors booking it online. Gold Exchange Traded Funds are also an alternative to accumulating paper gold,” he suggests.

Alternatively one can accumulate money to purchase gold through systematic investment plans offered by mutual funds or a bank recurring deposit. “Every time you buy gold, you pay a price for purity, making charges and also a premium over the gold market rate. Instead accumulate money to make gold purchase later,” Rustagi recommends.


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