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Defrauding customers with Savings scheme



gold deposit scheme

Retail Jeweller find outs why Gold deposit schemes are becoming ever more important for the jewellery industry even as several reports of retailers scamming consumers for personal gains come to fore.

—Manoj Chakraborty

Gold or jewellery savings schemes have been around for quite a while in the country. As per these schemes, generally offered by jewellers, people can deposit a fixed amount every month for a pre-
determined period of time. At the end of the tenure, they can receive gold from the same jeweller at a value that is equivalent to the total money deposited, including a bonus amount. The conversion is done at the gold price prevailing on maturity. At the end of the tenure, most jewellers add a month’s installment on behalf of the customer as a cash incentive, or offer a gift item.

Lack of rules and regulations

However, these schemes are not well-regulated, and there is hardly any supervision. Different jewellers offer different tenures and rates of interest to customers, with some offering rates as high as 15 per cent to 16 per cent. Besides, investors have no protection whatsoever should a jeweller go into liquidation, or becomes a wilful defaulter. Some reputed jewellers have been incorporated as private companies, and have been running reliable gold savings schemes for decades. But some industry players have been found to be frauding their customers, while others have not been able to honour their commitments. Take the case of Goodwin Jewellers in Mumbai, which has, allegedly, duped 700 people and decamped with their funds totalling Rs 21 crore. The company has shut down 12 of its branches. The incident came to light when several of its customers who had deposited money, as well as gold, with it approached the police. Incidentally, while most jewellers restrict the redemption of the gold purchase plan to ‘jewellery only’ at the end of the tenure, Goodwin Jewellers was also offering gold coins or cash.

Two days after Goodwin Jewellers shut its stores across Maharashtra and Kerala, a Ghatkopar-based gold retailer, Rasiklal Sankalchand Jewellers, also disappeared. These are not isolated cases. Earlier, IMA Jeweller in Bengaluru, and Nathella Sampathu Chetty and Ruby Jewellery, both from Chennai, also failed to honour their commitments to their customers as per their gold deposit scheme. In the year 2016, Kerala-based Avatar Gold defrauded customers to the tune of Rs 12 crore, and a year later, Thunchath Jewellers of the same state collapsed, sinking investor funds with it. While some of the scamsters have been arrested, including the owners of Rasiklal Sankalchand Jewellers, not all get punished. Rasiklal Sankalchand is alleged to have cheated its customers of Rs 300 crore. The brothers running the company allegedly convinced customers to invest large amounts of money in ponzi schemes over several months. As per initial reports, some of their schemes exceeded the 12-month period, as mandated by the Banning of Unregulated Deposit Schemes Ordinance, 2019.

Measures to regulate the scheme

The Banning of Unregulated Deposit Schemes Ordinance, 2019, was brought in by the Central government in February 2019 in order to regulate deposit plans offered by jewellers across the country. In July this year, the Union Cabinet approved the Banning of Unregulated Deposit Schemes Bill, 2019.

The Bill defines three types of offences and penalties related to them. These offences include running (advertising, promoting, operating or accepting money for) unregulated deposit schemes; fraudulently defaulting on regulated deposit schemes; and wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts. Accepting unregulated deposits will be punishable with imprisonment between two and seven years, along with a fine ranging from Rs 3 lakh to Rs 10 lakh.

Defaulting in repayment of unregulated deposits will be punishable with imprisonment between three and ten years, and a fine ranging from Rs 5 lakh to twice the amount collected from depositors. Further, repeat offenders will be punishable with imprisonment ranging from five years to ten years, along with a fine ranging from Rs 10 lakh to Rs 5 crore.

The big picture

Commenting on the deposit schemes, Nitin Kadam, owner, Chintamani Jewellers, Mumbai, says, “These deposit schemes are very important for jewellers for the smooth functioning of their business. They also benefit customers who can’t buy jewellery at one go because of high prices. As per the government mandate, deposits are not allowed, so jewellers are running the scheme as savings schemes. There are over 6 lakh jewellers in the country, and a majority of them are running some kind of deposit schemes, but the default percentage is less than 1%, which indicates that there are only a handful of jewellers who are misusing customer money.”

Anantha Padmanabhan, President, Gems and Jewellery Council (GJC), is also of the opinion that gold deposit schemes are mostly run scrupulously. “Today, everyone is running gold schemes successfully in the country, be it a public limited company or a partnership company. Consumers are happy and they are investing their money in these schemes and many of them are even renewing them, so there is absolutely no reason to worry. Although there are a couple of cases where things have gone wrong, but it does not mean that the whole industry is running the schemes in the same way. Banks have reduced the capital exposure to the jewellery sector and it is only these schemes which are funding the jewellers, so there is no way they will play with the money of the customers.”

Padmanabhan also makes it clear that the gold schemes do not fall under deposits as they are purely savings schemes. And it is important to note that the provisions of the Bill apply to deposits taken by way of business, illicit deposits, ponzi schemes, unregulated chit funds, and so forth. However, any deposit or advance from friends and family, whether for personal or business purposes, is out of the ambit of the Bill, which also states that jewellers cannot run any scheme for a period exceeding 12 months.

And, Padmanabhan clarifies, in most cases, “The money is collected as an advance against future purchases, and after the completion of the term period, the jewellers pay in kind, and not in cash. When you repay in cash, then it can be called a deposit scheme. The need of the hour is for jewellers to self-regulate their business. Every jeweller needs to hire a banker and an auditor who will monitor the savings scheme on a monthly basis, so that the money collected from customers is transformed into gold and the gold is utilised properly,” he adds.



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