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Theory:

     Ramayya's wife noticed the jewel as she was sweeping the floor. She picked it up with delight and wore it.
 
     Ramayya questioned her angrily, "How did you get hold of this diamond-stud?"
 
     "I found it lying here yesterday and took it. That is all."
 
     "We should go and deliver it to the village magistrate. If tomorrow the police should come and search our house, it will be a disgrace to us?"
Explanation:
 
When the male sparrow dropped the jewel, it fell on the floor of Ramayya's house. When the lady of the house was doing her routine works, such as cleaning and sweeping, she discovered the diamond stud. She picked it and wore it on her nose happily.

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Ramayya's wife discovered the nose jewel while she was sweeping the floor

So, do you think it was the right thing to do? No, because it didn't belong to her. Naturally, when her husband noticed the diamond stud on her nose, he was angry and asked her where and how she got that. She explained how she found it lying on their floor the previous day. So she took it and wore it. She wasn't feeling guilty because she believed that she didn't steal it.
 
Ramayya suggested that they should take the stud and deliver it to the village magistrate. He was worried that the police might come and find it in their house. He told her that it would be very shameful and would bring a bad name to their family. Though Ramayya was not a wealthy man, he was a man of principles. He knew what was right and what was wrong. But the wife failed to heed his advice.
 
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A magistrate
 
Meanings of difficult words:
 
S.No
Words
Meanings
1
DelightA heated argument or disagreement, typically about a trivial issue and between people who are usually on good term
2
Get hold of To obtain or find something
3
MagistrateA person who acts as a judge in a law court that deals with crimes that are less serious
4
DisgraceTo make people stop respecting you or your family, team, etc. by doing something very bad
Reference:
State Council of Educational Research and Training (2019). Term-3 English Standard-8. The Nose Jewel - C Rajagopalachari (pp. 81-85). Published by the Tamil Nadu Textbook and Educational Services Corporation.