Franklin questions Betteredge about the three Indians seen near the house. Franklin suspects that the "It" the Indians were wondering about is his uncle Herncastle's diamond, which Franklin takes out of his pocket and shows to Betteredge. Franklin explains that his uncle left the diamond to Rachel as a birthday present in his will and that he, Franklin, had been appointed to deliver it.
Betteredge expresses disgust at the mention of Franklin's uncle Herncastle, and Franklin asks him to explain. Betteredge describes John Herncastle as a "blackguard" who got the Indian diamond by dishonorable means. Back in England after his army service, Herncastle was shunned by the family and ended up alone, possibly with an opium addiction. Betteredge explains how Lady Verinder denied John Herncastle entrance into her home on the occasion of Rachel's birthday two years ago. That day, when Betteredge gave Herncastle the message that Lady Verinder declined to see him, Herncastle had said, "I shall remember my niece's birthday." He died eighteen months afterward.
Franklin looks affected by Betteredge's report. Franklin explains that he wants answers to three questions: Was the diamond the object of a conspiracy in India? Has the conspiracy followed the diamond to England? Did Herncastle mean to put Lady Verinder in the middle of the conspiracy by leaving the diamond to Rachel?