By Sasi Nair
Since time immemorial the shining yellow metal, ‘Gold’ has been an assured and safe investment option for mankind. Many find it difficult to buy Gold at one go and to lessen this hassle, jewellers float “gold schemes”, an investment scheme which allow them to buy Gold over a period of time through equated monthly instalments (EMIs). Attractive isn’t it, when a person pays smaller amounts and in due course get to buy something more than what he would have invested? There is a caveat however, all these schemes have an element of risk associated with them and identifying exactly what the risk is, is a daunting task.
Goodwin Jewellers which had been running its shops since over two decades is but the latest to join the scrapheap of failed jewellers that have dishonoured their commitments. There are many: IMA Jewellery in Bengaluru, Nathella Sampathu Chetty and Ruby Jewellery in Chennai, Thunchath Jewellers and Avathar Jewellers in Kerala, which are some of the prominent cases that have come to public light. In all these investors had to face the brunt of losing their hard earned money.
In wake of these many instances of jewellers’ businesses collapsing, the question comes up in mind: Do we have a remedy? As per prevailing laws, investors have no protection whatsoever if the jeweller’s business crashes and goes into liquidation or the jeweller absconds. “More often than not the investor’s money will be less than Rs. 1 lakh and this will not come under the ambit of Insolvency Bankruptcy Code. The amount invested in such cases is considered as unsecured credit or as trade advance,” said a former government official from Ministry of Corporate Affairs. He further pointed out, “It is pertinent to note that the Securities and Exchange Board of India (SEBI) guidelines declares that if the deposit exceeds Rs. 100 crores in any scheme then it becomes a collective investment scheme. For that obtaining SEBI’s approval is mandatory, which many companies don’t get.”
Unfortunately many investors aren’t aware that only some gold schemes are legal. It is very important to determine the nature of the firm doling out such gold schemes, whether it is a public limited company or a private limited one, a partnership firm, or a proprietorship, before you invest. Legal experts opine: “A public limited company can accept deposits from the public. Companies Act, 2013 provides the statutory authority for this. Furthermore, the total deposits that a company can receive are capped at 25 per cent of the net worth of the firm,” said a legal analyst.
Gold harvest schemes are extremely popular among Indian masses, right from the small shop in your nearest marketplace to big corporates such as Tanishq, Nakshatra, Kalyan Jewellers, Malabar Gold, and many more. Tanishq, for instance, in FY 2018-19, generated deposits worth Rs. 1,273 crores as against Rs. 1,041 crores in the preceding financial year, as per its annual report. Companies have to comply with regulation changes whenever it happens. Kalyan Jewellers, an unlisted public company, has been offering gold schemes for around 30 years. The company’s chairman and managing director, T.S. Kalyanaraman, said, “The amended Companies Act was effective from April 1, 2014. At that time, we communicated to customers to close their schemes and refunded their money. We then operated a new scheme which didn’t get us any returns for almost two years, till the time we converted into a public limited company on June 15, 2016. We launched a product which was in compliance with the Companies Act in August 2016, in terms of the duration of the scheme and the return offered to customers.”
Private limited companies can take deposits from customers since Rule 2 of Companies Act allow them to do so. Some well-known jewellers have registered themselves as private limited companies and have been running gold schemes since decades. An industry analyst pointed out, “Private limited companies can’t accept deposits. They can however take advances for sale of goods for which the goods and money should be returned within a year without any returns or interest.” He further added, “There are many firms which aren’t registered either as public limited or as private limited but continue to operate different schemes. This presents a question mark on the Companies Act as
schemes that these companies offer aren’t covered under the purview of the Act.”
Nevertheless until legislation covers these grey areas public however needs to caution itself to the mouth-watering schemes offered by jewellers and find out themselves whether it is worth parking your funds with the jeweller. Following the advice of your friend who has been getting bonus or discounts, as the jewellers’ term it, regularly, or looking at the history chain of the jeweller could perhaps be one way. However, there is no guarantee as seen from the pitfalls of Goodwin Jewellers or IMA Jewellers seen in recent past, as schemes after all, comes with that element of risk in.
