Auditor Report of Enchante Jewellery Ltd.

Mar 31, 2005

We have audited the attached Balance Sheet of M/s Enchante Jewellery Ltd. as at 31st March 2005 and also the Profit & Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis of our opinion.

As required by the Companies (Auditors Report) order, 2003 issued by the Central Government in terms of sub section (4A) of section 227 of the companies Act, 1956 we enclose in the annexure a statement on the matters specified in paragraph 4 and 5 of the said order.

Furtherto our comments in the annexure referred to above, we report that:

i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

ii) In our opinion, proper books of accounts as required by law have been kept by the company, so far as appears from ourexamination of those books.

iii) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

iv) In our opinion, the Balance Sheet, the Profit & Loss Account and Cash Flow Statement dealt with by this report, comply with the Accounting Standards referred to in sub-section 3(C) of section 211 of the Companies Act, 1956 to the extent applicable to the company.

v) On the basis of the written representations received from the directors as on 31.3.2005 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2005 from being appointed as a director in terms of clause(g) of sub-section (1) of section 274 of the companies Act, 1956.

vi) Attention is invited to:

a) The preparation of accounts going on concern basis, despite the company being a sick industrial company, and incurring operational losses continuously.

vii) a) Note no. 6 of part B of schedule K regarding writing back of Rs 624.65 lakhs in the Profit & Loss Account during the financial year 2002-03 and non provision of interest on amount payable to SBI (amount unascertained), in respect of Loan of State Bank of India. The bank has denied for the OTS proposal as not being acceptable by the banks appropriate authority, in view of the sacrifice involved on the part of the bank.

b) Note no. 14 of part B of Schedule K regarding accounting of liability for bonus on payment basis. (amount unascertained).

We further report that the profit for the year and balance in the Profit and Loss Account are without considering the impact of terms mentioned in (vi) and (vii) (b) above, the impact of which could not be determined. Had the effect of item mentioned in para 2 (vii) (a) above been given, the secured loans in the balance sheet would have been Rs. 1031.89 Lakhs (as against the reported figure of Rs. 407.24 lakhs), and the debit balance in the Profit & Loss Account would have been Rs. 1284.77 lakhs (as against the reported figure of Rs 660.12 lakhs).

Subject to the foregoing, in our opinion and to the best of our information and according to the explanations given to us, the said accounts, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a. in the case of Balance Sheet, of the state of affairs of the Company as at 31st March 2005; and

b. in the case of Profit & Loss account, of the profit for the year ended on that date.

For Anuj Kumar Gupta & Co. Chartered Accountants Place : Gurgaon (Anuj Kumar) Date : 23rd August, 2005 Proprietor

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF THE REPORT OF EVEN DATE OF THE AUDITORS TO THE MEMBERS OF M/S ENCHANTE JEWELLERY LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED 31ST MARCH 2005.

1. a) As informed to us, the company is in the process of compiling the Fixed Assets Records showing full particulars including quantitative details and situation of fixed assets.

b) The company has a program of physical verification of fixed assets over a period of three years which is, in our opinion, reasonable having regard to the size of the company and the nature of the assets. However no fixed assets have been physically verified by the management during the year.

c) In our opinion, the company has not disposed off a substantial part of the fixed assets during the year and therefore paragraph 4 (i) (c) of the Companies (Auditors Report) order, 2003 (hereinafter referred to as the Order) is not applicable.

2. a) Physical verification of inventory has been conducted by the management during the year and, in our opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventories followed by the management are reasonable and adequate, in relation to the size of the company and nature of its business.

c) The company is maintaining proper records of inventories and no material discrepancies have been noticed on physical verification of inventories as compared to the book records.

3. According to the information and explanation given to us the company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956, and therefore paragraph 4(iii) of the said order is not applicable.

4. In our opinion and according to information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of the business, for the purchase of inventories and fixed assets and for the sale of goods. We have neither come across nor have we been informed of any major weakness in the internal control procedures.

5. a) To the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the transactions that need to be entered in the Register in pursuance of Section 301 of the Companies Act, 1956 have been so entered.

b) In our opinion and according to the information and explanation given to us, transactions during the year exceeding the value of five lakhs rupees in respect of any party which required to be entered in the register u/s 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us, the company has not accepted deposit from the public to which the provisions of section 58A ana 58AA of the Companies Act, 1956 and the rules framed there under are applicable, and therefore paragraph 4 (vi) of the order is not applicable.

7. In our opinion, the Company has an internal audit system which is commensurate with its size and nature of business.

8. It has been informed to us that the central Governments has not prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act.1956 for the products of the company.

9. (a) In our opinion and according to the information and explanations given to us, the company, due to its financial sickness, is on occasion irregular in depositing undisputed statutory dues including provident fund, employees state insurance, and income tax deducted at source with the appropriate authorities. However, all of the undisputed statutory dues as on 31.03.2005 have been paid and therefore the delay does not appear to be wilful or intentional. As on 31st March 2005, according to the records of the company, the following are the particulars of undisputed dues on account of provident fund, employees state insurance, sales tax and income tax deducted at source, on which the company was irregular and the dates on with the said payments were made.

Name of Nature of dues Amount Rs. Due Date the statue

Provident Employer contribution 76932/- 15th of the Fund and PF charges for the following period from September 04 month of the to March 05 month in which amount is deducted.

Provident Employee contribution 10139/- 15th of April 05 Fund for the month of March 2004 is Errplcysrs contribution for March, 4164/- 21st April, 2004 Rs 1675/- deposited on Gurgaon 05 Rs.1675/-, and OT and 15/4/05 and balance on trial staff for 2002-03 20-6-2005

ESI Payabletowards Employers 119402/- 21st of following Gurgaon contribution from October month of the 2002 to Sept 05 and March 05, month in which payment made for Contractors.

ESI Delhi For the month of 318/- 21.04.2005 16.04.2005 March 05

Tax Deducted on 20.9.04 12830/- 7th of following month deducted Rs.472/-Deducted on of the month in which at source 31.3.2005 Rs 11698/-, amount is deducted. Interest for the year Amount deducted on 2004-05 Rs 660/- the last day of the year can be deposited in two months from the end of the year

Name of Date of payment the statue

Provident Rs. 67129/-pertaining to the Fund period from Sept 04 to Feb 05 has been paid during the month of May 05 and June 05. However the companyis still to pay the employer contribution and PF charges for the month of March 05 amounting to Rs 9803/-.

Provident 27-04-2005 Fund 15/4/05 and balance on 20-6-2005

ESI deposited from 30.04.05 Gurgaon to 23.06.05 month in which payment made for amount is deducted. Overtime and Staff on trial, relating to the financial year 2002-03.

ESI Delhi 21.04.2005 16.04.2005 March 05

Tax depositedon20.5.05. depositedon 30.6.05 depositedon20.5.05 deposited on 30.6.05

10. The companys accumulated losses at the end of the financial year are more than fifty percent of its net worth and it has incurred cash losses in such financial year. The company has been declared a sick industrial company during the year 1999-2000, within the meaning of clause (0) of Sub section (1) of Section (3) of Sick Industrial companies, (Special Provisions) Amendment Act, 1992 vide BIFR letter dated 25-10-2002.

11. In view of the note number 6 of Part B of Schedule K, we are unable to comment to determine whether there is a default in repayment of loans due to the State Bank of India.

12. The company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities and therefore paragraph 4(XII) of the order is not applicable.

13. The provisions of any special statute applicable to chit fund and nidhi/mutual benefit fund/society are not applicable to the company and therefore paragraph 4(XIII) of the Order is not applicable.

14. The company is not dealing or trading in shares, securities, debentures and other investments and therefore paragraph 4(XIV) of the Order is not applicable.

15. According to the information and explanations given to us, during the year the company has not given any guarantee for loans taken by others from banks or .financial institutions and therefore paragraph 4(XV) of the Order is not applicable.

16. According to the information and explanations given to us the company has not availed any term loans during the year and therefore paragraph 4(XVI) of the Order is not applicable.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, in our opinion, there are no funds raised on short term basis which has been used for long term investments and vice versa.

18. The company has not made any preferential allotment of shares during the year and therefore paragraph 4(XVIII) of the Order is not applicable.

19. The company has not issued any debentures during the year and therefore paragraph 4 (XIX) of the Order is not applicable.

20. The company has not raised any money by way of public issues during the year and therefore paragraph 4 (XX) of the Order is not applicable.

21. Based upon the audit procedures performed and as per the information and explanations given to us by the management, we report that no fraud on or by the company has been noticed during the year.

For Anuj Kumar Gupta & Co. Chartered Accountants Place : Gurgaon (Anuj Kumar) Date : 23rd August, 2005 Proprietor

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Mar 31, 2003

We have audited the attached Balance Sheet of M/s Enchante Jewellery Ltd. as at 31st March 2003 and also the Profit & Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis of our opinion.

1) As required by the Manufacturing and other Companies (Auditors Report) Order, 1988 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

2) Further to our comments in the annexure referred to above, we report that:

i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

ii) In our opinion proper books of account as required by law have been kept by the company so far as appears from our examination of those books.

iii) The Balance Sheet and Profit and Loss Account referred to in the report are in agreement with the books of account.

iv) In our opinion, the Profit & Loss Account and Balance Sheet, comply with the Accounting Standards referred to in Sub-Section 3(C) of Section 211 of the Companies Act, 1956, to the extent applicable to the company.

v) On the basis of the written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 30th November, 2002 from being appointed as a director under Section 274 (1) (g) of the Companies Act, 1956.

vi) Attention is invited to:

a) The preparation of accounts on going concern basis, despite the company being a sick industrial company, and incurring operational losses continuously

b) Note no. 7 of part B schedule K, considering the current operations of the company, we are unable to comment on the companys ability to continue and maintain the production atleast for next five years not below the level of average production for the preceding five years required to be maintained as per the terms of rules framed under Haryana Sales Tax Act, and consequences thereof.

vii) a) Note no. 6 of part B of schedule K regarding writing back of Rs. 624.65 lacs in the Profit & Loss Account, in respect of Loan of State Bank of India. The bank has denied for the OTS proposal as not being acceptable by the Banks appropriate authority in view of the sacrifice involved on the part of the bank.

b) Note no. 15 of part B of Schedule K regarding accounting of liability for bonus on payment basis, (amount unascertained)

We further report that the profit for the year and balance in the Profit and Loss Account are without considering the impact of items mentioned in 2 (vi) (b) and 2 (vii) (b) above, the impact of which could not be determined. Had the effect of item mentioned in para 2 (vii) (a) above been given, the Loss for the year would have been Rs. 79.46 lacs (as against the reported profit of Rs. 545.19 lacs), secured loans in the Balance Sheet would have been Rs. 998.62 lacs (as against the reported figure of Rs. 373.97 lacs), and the debit balance in the Profit & Loss Account would have been Rs. 1187.31 lacs (as against the reported figure of Rs. 562.67 lacs).

Subject to the foregoing, in our opinion and to the best of our information and according to the explanations given to us, the said Balance Sheet and the Profit & Loss Account read together with other notes thereon, give the information required by the Companies Act, 1956, in the manner so required and in conformity with the accounting principles generally accepted in India:

In the case of Balance Sheet, give a true and fair view of the State of Affairs of the Company as at 31st March 2003, and

In the case of Profit and Loss Account, does not give a true and fair view of the profit for the year ended on that date.

For T.R. Chadha & Co. Chartered Accountants Place: Gurgaon (Kapil Kedar) Dated: 23.08.2003 Partner

1) As informed to us, the Company is in the process of compiling the Fixed Assets Record. All the fixed assets are stated to be physically verified by the management during the year and no material discrepancies are reported to be observed on such verification.

2) None of the fixed assets of the company have been revalued during the year.

3) The stock of finished goods, raw materials etc. of the company have been physically verified by the management at reasonable intervals during the year.

4) In our opinion and according to the information and explanations given to us, the procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the company and nature of its business.

5) The discrepancies noticed on verification between the physical stocks and records were not material in relation to the operation of the company.

6) In our opinion and on the basis of our examination of the records, the valuation of stock is fair and proper and is in accordance with the normally accepted accounting principal and is on the same basis as in the preceding year.

7) The company has not taken any loans from companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act. 1956 or from other companies under the same management.

8) The company has not granted any loans to companies firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956 or to other companies under the same management.

9) The company has given no loans or advances in the nature of loans during the year.

10) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the company and the nature of its business, for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods.

11) According to the information and explanation given to us, the prices paid for purchase of stores, raw materials or components and services rendered in excess of Rs.50000 in value of each type thereof from firms, companies or other parties in which directors are interested as listed in the register of contracts maintained under Section 301 of the companies Act, 1956, are reasonable as compared to the prevailing market prices of such goods and materials.

12) As explained to us, no unserviceable or damaged stores, raw materials and finished goods have been determined by the company during the year.

13) The company has not accepted any public deposit within the meaning of Section 58A of the Companies Act, 1956, and rules framed there under.

14) According to the information and explanations give to us, the company did not have any by-products an scrap for sale or disposal during the year.

15) In our opinion, the Company has an internal system generally commensurate with the size am nature of its business.

16) It has been informed to us that the Centra Government has not prescribed maintenance of cost records for the company under Section 209 (1) (d) of the Companies Act, 1956.

17) According to the records of the company, Providen Fund and Employees State Insurance dues have no been regularly deposited with appropriate authority during the year.

18) According to the information and explanations giver to us, there were no undisputed amounts payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs duty and Excise duty outstanding fora period of more than six months as at 31st March, 2003 from the date they become payable. However, attention is drawn to Note No. 4 of part B of Schedule K.

19) According to the information and explanations given to us, no personal expenses, other than those payable under contractual obligation and/or generally accepted business practices, have been charged to revenue.

20) The Company has been declared a sick Industrial company during the year 1999-2000, within the meaning of clause (0) of Sub-Section (1) of Section 3 of the Sick Industrial Companies, (Special Provisions) Amendment Act, 1992 vide BIFR Ietter Dt. 25/10/2002.

21) In the case of service activities, the Company has a reasonable system of recording receipts, issue, consumption of materials and stores and allocation thereof to the relative Jobs, commensurate with the size and nature of its business.

22) Service jobs and technicalities thereof provide reasonable system of allocation of man hour utilization of relative jobs.

23) There is a reasonable system of authorization at proper levels and an adequate system of internal control commensurate with the size of the Company and the nature of its business on the issue of stores and allocation of stores and labour to the jobs.

24) According to the information and explanation given to us, there were no damaged goods in respect of trading.

For T.R. Chadha & Co. Chartered Accountants Place: Gurgaon (Kapil Kedar) Dated: 23.08.2003 Partner

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Mar 31, 2002

1. We have audited the attached balance sheet of M/s Enchante Jewellery Ltd. as at 31st March 2002 and also the profit and loss account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis of our opinion.

3. As required by the Manufacturing and Other Companies (Auditors Report) Order, 1988 issued by the Central Government of India in terms of subsection (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

4.1 We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

4.2 In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

4.3 The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account;

4.4 In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 to the extent applicable.

4.5 On the basis of the written representations received from the directors as on 31st March, 2002, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2002 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

4.6 In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the Notes on Accounts as per Schedule -K give the information required by the Companies Act, 1956, in the manner so required and subject to:

4.6.1 The preparation of accounts on principles applicable to a going concern despite erosion in net worth due to accumulated losses.

4.6.2 Note No. 7.2 Part B of Schedule K: company has changed the method of apportioning the payments, made to the State Bank of India, towards interest and principle, resulting in the less charging of interest, during the current financial year, by Rs. 7.88 lacs.

4.6.3 Note No. 7.4 Part B of Schedule K: company has not provided interest on the payments made by the State Bank of India to foreign bank against the Deferred Payment Guarantee issued on behalf of the company, resulting in the less charging of interest, during the current financial year, by Rs. 14.86 Lacs. give a true and fair view in conformity with the accounting principles generally accepted in India:

a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2002; and

b) in the case of the Profit and Loss Account, of the profit of the Company forthe period ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF THE AUDITORS REPORT ON THE ACCOUNTS OF M/S ENCHANTE JEWELLERY LTD. FOR THE PERIOD ENDED 31ST MARCH 2002.

1. As informed to us, the Company is in the process of compiling the Fixed Assets Record. All the fixed assets are stated to be physically verified by the management during the year and no material discrepancies are reported to be observed on such verification.

2. None of the fixed assets of the Company have been revalued during the period.

3. The stock of finished goods, raw materials etc. of the Company have been physically verified by the management at reasonable intervals during the year.

4. In our opinion and according to the information and explanations given to us, the procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

5. The discrepancies noticed on verification between the physical stocks and records were not material in relation to the operation of the Company.

6. In our opinion and on the basis of our examination of records, the valuation of stock is fair and proper and is in accordance with the normally accepted accounting principle.

7. The Company has not taken any loans from companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act or from other companies under the same management.

8. The Company has not granted any loans to companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956 or to other companies under the same management.

9. The Company has given no loans or advances in the nature of loans during the year.

10. In our opinion, and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business, for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods.

11. According to the information and explanations given to us, the prices paid for purchase of stores, raw materials or components and services rendered in excess of Rs. 50000 in value of each type thereof from firms, companies or other parties in which directors are interested as listed in the register of contracts maintained under Section 301 of the Companies Act, 1956, are reasonable as compared to the prevailing market prices of such goods and materials.

12. As explained to us, no unserviceable or damaged stores, raw materials and finished goods have been determined by the company during the year.

13. The Company has not accepted any deposit from public within the meaning of Section 58 A of the Companies Act, 1956, and rules framed there under.

14. According to the information and explanation given to us, the company did not have any by-products and scrap for sale or disposal during the year.

15. In our opinion, the Company has an internal audit system generally commensurate with the size and nature of its business.

16. It has been informed to us that the Central Government has not prescribed maintenance of cost records for the company under section 209 (1) (d) of the Companies Act, 1956.

17. According to the records of the Company, Provident Fund and Employees State Insurance dues have not been regularly deposited with the appropriate authority during the year.

18. According to the information and explanations given to us, there were no undisputed amounts payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs duty and Excise duty outstanding for a period of more than six months as at 31st March, 2002 from the date they became payable. However, attention is drawn to Note No. 4 & 5 of Part B of Schedule K.

19. According to the information and explanations given to us, no personal expenses, other than those payable under contractual obligation and / or generally accepted business practices, have been charged to revenue.

20. The Company has become a Sick Industrial Company during the year 1999-2000, within the meaning of clause (O) of sub-section (1) of Section 3 of the Sick Industrial Companies, (Special Provisions) Amendment Act, 1992. The company has made a reference to Board of Industrial And Financial Reconstruction on 29.06.2000 vide case No. 223/2000.

21. In the case of service activities, the Company has a reasonable system of recording receipts, issue, consumption of materials and stores and allocation thereof to the relative jobs, commensurate with the size and nature of its business.

22. Service jobs and technicalities thereof provide reasonable system of allocation of man hour utilization of relative jobs.

23. There is a reasonable system of authorization at proper levels and an adequate system of internal control commensurate with the size of the Company and the nature of its business on the issue of stores and allocation of stores and labour to the jobs.

24. According to the information and explanation given to us, there were no damaged goods in respect of trading.

For T.R.Chadha & Co., Chartered Accountants

Place : Gurgaon B.B.GUPTA Date : 31.07.2002 (Partner)