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On the twentieth day of their journey across India, jewel merchant Hamid and his son Karim stop their caravan at an Indian village, where they plan to spend the night. There, Karim meets Rao Rama, an old holy man, who saves his life by hiding him in a shallow grave when a gang of bandits attack the village. Before Karim is hidden, Hamid tells his son that gratitude is the most important virtue one can possess. He then gives Karim his most precious possession, a large diamond. The bandits massacre the entire village, including Hamid, but Karim is not discovered. After the siege, the orphaned boy journeys to Bombay, where he tries to sell the diamond in a jewelry store. The jeweler Karim chooses, however, is unscrupulous and tries to cheat Karim by offering him a mere twenty rupee for the gem. When Karim tries to leaves the store, the merchant calls him a thief, and a mob of people chase after him. The police arrest Karim, and he is falsely accused by the merchant of stealing the diamond from his store. Things look bad for Karim until a wealthy American named William Darsay overhears the trial and steps forward as a witness to the fact that the jewel belonged to Karim. Karim is found innocent, and his diamond is returned to him. Later, when Karim finds William dining in his hotel, he tries to thank him by giving him the diamond, but the American refuses to accept it. Karim then tells William that if he will not accept the gift, he must remain forever indebted to the Westerner. While leaving the hotel, Karim is approached by a wealthy man who offers him a great deal of money for the diamond, which he accepts. Karim's newfound riches soon allow him to attend many high society social functions. At one such event, a polo match, he meets the lovely Janice Darsay, William's sister, and a romance flourishes. Sometime later, while visiting Karim at his mansion, Janice is called away by her aunt, who insists that she accompany her to see William in Calcutta. Janice soon realizes her aunt's true motive when she is upbraided for mingling with an Indian, and despite her aunt's insistence that she do otherwise, Janice goes on a tiger hunt with Karim. This angers her aunt and prompts her to send a message to William telling him to come at once to save his sister. While on their trek, Karim happens upon the bandit who killed his father, and during their scuffle, Janice falls into a poisoned plant and is wounded. After Karim removes the poison from Janice, the two become engaged. When William arrives, he is surprised to see that Karim is the Indian with whom his sister has been involved. Nevertheless, William asks Karim to call off the wedding, asserting that an interracial marriage will surely result in her being ostracized by her friends and family. Karim anguishes over the request and begs William not to insist on it, but eventually abides by his wishes when William reminds Karim of his father's commandment regarding the importance of gratitude.