Notes to Accounts of Enchante Jewellery Ltd.

Mar 31, 2005

1 Guarantees given by the Bankers (other than against secured loans) on behalf of the company Rs. 1,60,000 (Previous year Rs. 1,60,000) to DGFT under EPCG Scheme.

2 Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 4387606/- (Previous year Rs 4387606/-)

3 In the opinion of the Board, the current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4 i) The Company had imported Jeweltery manufacturing machinery in the year 1995-96 under the EPCG scheme of the Government of India. The Director General of Foreign Trade in FY 1999-2000 raised a demand notice, asking the Company to deposit the entire duty saved and interest thereon @ 24% per annum.

ii) In the EXIM policy there is a provision for an extended export obligation period of 12 years for units registered with the Board for Industrial & Financial Reconstruction (BIFR). Since, the company is registered with the BIFR and has been declared sick, it is entitled to have its export obligation period extended to 1.3.2007.The companys application is pending before the DGFT. In view of the fact that the company had already provided a liability towards interest, to the tune of Rs. 214.25 lakhs up to 31.3.2001 (on simple interest basis), and the company is eligible to fulfill its export obligation up to 1.3.2007, the company has, decided not to provided further liability towards interest on custom duty demand from 1.4.2001 to 31.3.2005, which would have amounted 10 Rs 147.28 Lakhs.

iii) The DGFT is seized of the matter pertaining to extension of Export Obligation (EO) till 1.3.2007 and also to ascertain the balance EO, if any, after adjusting all shipping bills filed by the company so far.

5 Some of the Debit and credit balances are subject to confirmation/reconciliation.

6 The Company had been pursuing the SBI, its main banker, for a one time settlement of its alleged dues. After protracted and extensive negotiations the Bank agreed to a settlement amount, the bank asked the company to arrange for an upfront deposit of Rs 50 Lakhs towards the one time settlement to show its earnestness of going through with the settlement once the bank completed the paperwork. The company had earlier deposited Rs 10 Lakhs with the bank and provided the balance in the form of pay orders worth Rs 40 lakhs in August 2002. The Bank committed that the paperwork for the settlement would be completed with in a period of 8 weeks and not later than 12 weeks under any circumstances. The bank also committed that the pay orders would not be encashed until all the approvals to the settlement were in place.

The agreed amount of the settlement was Rs 400 lacs plus Rs13.50 lakhs towards alleged DPG commission.

Subsequently, the Bank, vide its letter dated 7.1.2003, imposed some additional conditions came back with a counter offer to the company and asked the company to submit the board resolution confirming the same. The banks counter offer was as follows;

a) Entire amount Rs 400 lakhs would be deposited (subject to adjustment of Rs 50 lakhs already deposited as initial amount) with in 90 days of the sanction by the bank being conveyed to the company, where after interest @ 15% with monthly rests would be charged/recovered from the date of the sanction being conveyed for the overdue period, in the event of default.

b) Rs 13.50 lacs payable towards overdue DPG commission would be deposited with in 2 weeeks of receipt of banks acceptance of OTS offer, as stated above.

c) Margin money FDR aggregating to Rs 16 lakhs or so held in respect of the bank guarantees issued would also be appropriated by the bank towards compromise settlement, in addition to the aforesaid compromise offer amount.

d) Rs 3.50 lakhs would be reimbursed to the bank by EJL with in 15 days of the sanction being conveyed towards legal expenses incurred by the bank.

e) Also the company would organize with DGFT New Delhi for return of original bank guarantees bonds/documents for Rs 77.75 lakhs duly discharged by the aforesaid department, as these bank guarantees have already expired in the Bank s records.

The company was required to send its confirmation in the matter together with a board resolution. The company vide its letter dated 13-1 -2003, accepted the counter offer given by the bank. Official of the bank informed the company that that the settlement was through and all that was left was the paperwork, which was a mere formality. The company was therefore shocked when the bank vide its letter dated 24.3.03 conveyed to the company that the OTS offer received from the company was recently put up for consideration of Banks Appropriate Authority, and the same has not been found acceptable in view of the sacrifice involved on the part of the bank.

The company is of the opinion that the settlement has already been arrived at, as (1) the company made the offer, (2) the bank accepted the offer and asked for an upfront payment of Rs 50 Lakhs, (3) the bank acted upon the contract by encashing the drafts of the initial deposit, (4) the bank gave the counter offer, (5) and finally the company accepted the counter offer.

The Banks assessment that the Companys offer was not acceptable in view of the sacrifice on the part of the bank is an afterthought. The bank should have considered this before it accepted the companys offer, asked for a deposit of Rs 50 lakhs, encashed the pay order and gave its counter offer.

The company therefore decided to give the effect of this settlement in its books of accounts for the year 2002- 03, and hence showed the liability towards the bank at Rs 367 lakhs, the amount which was payable as per offer accepted by the SBI R&R Branch New Delhi, and wrote back the difference amount of Rs. 624.65 lacs to its Profit & Loss Account.

The company had roped in a strategic investor for the purposes of funding of the said agreed settlement. The SBI had promised the investor in July/August 2002 that it would complete the settlement within B weeks, and not later than 12 weeks under any circumstances.The investor gave an ultimatum to the Bank in August 2003 that if the agreed settlement is not completed/executed with in a reasonable time frame he will exit the venture. The Bank drove away the investor and refunded an amount of Rs 40 Lakhs that was deposited in the No-lien account.

The company has received preliminary legal advice that the State Bank of I India is estopped from going back on the agreed settlement after it has interalia acted on the agreed settlement by encashing the pay orders, the bank giving a counter offer and the company accepting the Banks counter offer. In the event the company is unable to resolve the issue with the SBI, the company will take all steps to hold the bank accountable for its defaults towards the company, as well as claim damages on this account as per legal advice.

The loans availed by the Company from the State Bank of India were secured by a charge on the assets of the Company. In light ofthe fact that the Company and the Bank agreed to a one time settlement in FY 2002-03 and the agreed settlement was acted upon by all parties and the Bank thereafter reneged on the agreed settlement, the Banks Claims vis-a-vis alleged securities and recourse to the borrower and/or alleged guarantors is a subject matter of dispute and will be contested by the Company

7 Company has availed the sales tax exemption as per the Haryana Sales Tax Act. This exemption expired on 28.9.2002. After this date, the company is paying sales tax as per the provisions of the act. However, as per the terms of rules framed under Haryana SalesTax Act, the unit shall have to continue its production at least for next five years not below the level of average production for the preceding five years. In case, unit violates this conditions it may be liable to make, in addition to the full amount of tax benefit availed of by it during the period of exemption, payment of interest chargeable under the Act as if no exemption was ever available to it. The Techno Economic Viability conducted by an agency appointed by SBI in 2003-04 has categorically stated the company set up the latest facility for manufacture of gold and studded jewellery and also that the company has been able to establish its brand. The Techno economic viability study has pointed out that the companys primary handicap is the shortage of working capital. It is a matter of record that the Company was sanctioned a working capital limit of Rs 525 lacs and the Bank failed to disburse the sanctioned working capital limit of Rs 525 lacs. The company continues to strive to resolve its issue with the Bank and in the event that the company is able to overcome the working capital hurdle, it is quite hopeful of fulfilling the total production condition imposed under Haryana SalesTax Act, and therefore no provision has been made towards this.

8 Directors Remuneration Amount in Rs. Current year Previous year

Salary and Allowances Nil 456000

9 The company operates in Single Business Segment of Jewellery and hence segment reporting as defined in Accounting Standard-17, Segment Reporting, issued by the Institute of Chartered Accountant of India is not applicable to the company.

10 Related Party Disclosure, in terms of Accounting Standard-18 issued by I nstitute of Chartered Accountants of India is given below:

(Amount in Rs.)

Nature of Purchase Sale of Labour Balances Relationship of Goods Goods Charges outstanding Received as on 31-03-04

Enterprises in which directors are interested 1261330 4350000 1287354 2139917Cr

11. The company has adopted the Accounting Standard-22 Accounting for taxes on Income issued by the Institute of Chartered Accountants of India. The company has unabsorbed Depreciation and carried forwarded Business Losses giving rise to the creation of Deferred tax assets. However, on the principle of prudent business practice, the same has been recognized to the extent of Deferred tax liability. The Deferred Tax asset & liability comprise of the following timing differences as on 31-03-2005:

Deferred Tax Liability Amount (In Rs. Lacs)

Higher depreciation claimed undertax laws 45.71

Total 45.71

Deferred Tax Assets

Unabsorbed Depreciation 45.71

(Balance amount to the extent of Deferred Tax Liability)

Total 45.71

12 Eamings Per Share (As required by the AS-20 issued by the lnstitute of Chartered Accountant so India)

Current year (Rs) Previous year (Rs)

(A) Net profit after tax as per Profit and Loss a/c (Numerator) -56621905 -9745360

(B) Weighted average of no. of Equity shares (Denominator) 7173300 7173300

(C) Basic/Diluted EPS (A/B) -7.89 -1.36

13 There is no dues to small scale industrial undertakings to whom the company owes a sum outstanding for more than 30 days as on March 31,2005 on the basis of available information with the company and to the extent identified by the Management.

14 The company has not provided the liability of Bonus as the same shall be accounted for on payment basis.

15 As per Citibank letter dated October 22,2003, the alleged liability towards Citibank was Rs 343046/-.The company has filed a case against Citibank for damages and against this liability of Rs 343046/- deposited a sum of Rs 350000/- with the Registrar, Delhi High Court Delhi. In its books of accounts the company has squared up the account of Citi Bank NA and shown the balance as amount lying with the Registrar, Delhi High Court Delhi.

16 The company has already been declared sick, during the year 1999-2000, with in the meaning of clause (0) of sub section (3) of Sick Industrial Companies (special provisions) Amendment Act, 1992 vide BIFR letter dated 25-10-2002. The BIFR in its hearing dated 7-5-2003, has considered the matter and gave its directions. In the meantime, a Techno Economic viability study conducted by an agency appointed by the SBI in 2003-04 has stated that the Company set up the latest facility for manufacture of gold and studded jewellery and also that the Company has been able to establish its brand. The TEVS has also noted that the companys primary handicap is the shortage of working capital. The Company has requested to the bank to hold a structured meeting to discuss the TEVS, but the bank has failed to do so. Now the company has approached the Bl FR to change the Operating Agency.

17 Inventory as at 31.3.2005 includes new diamond Jewellery containing diamond 56.73 carats and 1 Set gold 373.540 grams, valued at Rs 1415977, lying with Sales tax department Jammu. Matter is pending with Honble Jammu and Kashmir High court Jammu. As the company is hopeful of getting the demand raised by the concerned department quashed by the Jammu sales tax department in Honble Jammu and Kashmir High Court, no provision for this amount has been made.

18 Interms of the conditions set out for recognition and measurement of animpairmentloss, in the Accounting Standard AS-28, issued by the Institute of Chartered Accountants of India, if the recoverable amount of an asset is less than its carrying amount the carrying amount of the asset should be reducedtoits recoverable amount.

The company has set up the facilities for production of Gold and Diamond Jewellery in 1995. Total investment in plant & machinery as at 31.3.2005, is Rs 1061.02 Lakhs. However due to shortage of working capital, which was mainly attributable to the state bank of India, the company could not achieve its true potential. Later on the bank filed the case for recovery of its dues. Subsequently it was declared sick during the year 1999-2000. Dueto continuing litigation with bank and being a sick company the company faced enormous problems in arranging working capital, which results in non usage of its installed plant & machinery. The techno economic study conducted by the state bank of India in 2003-04 has pointed out that the primary handicap is the shortage of working capital. During the course of Techno Economic viability study, the bank has got the valuation of its fixed assets done by M/s Nemani Garg Agarwal & Co, Chartered Accountants New Delhi. As per their report the valuation of the plant & machinery as at 31.3.2002 is Rs 1,72,45,400/-. As per the valuation report the valuer appointed by the bank, he has taken into account the • following fact;

"Prospective buyer of the plant will incur expenditure to get the machineries thoroughly overhauled, replacement of missing cumdamaged items/accessories in machines and change/repair of electrical equipments. Testing eqyipements will require maintenance. All measuring and testing equipments will have to be repaired and recalibrated. Functional obsolescence in the laboratory equipment is very high due to requirement of accuracy and precision. Considering the nature of Plant & Machinery, it is felt that they could be utilized only for specific purpose of making gold chains, gold bangles, and diamond studded with gold base. Effect of outstanding export obligation/custom penalties etc would also have to be kept in consideration. He would consider all these factors and the circumstances under which the plant is being sold, before proposing an offer."

Since, the availability of working capital have further worsened later on, in the opinion of the company the carrying amount of the plant and machinery exceeds its recoverable amount.

For the purpose of arriving at the amount of impairment loss, the carrying cost of machinery as at 31.3.2005 was Rs 625,14,551/-. Based on the facts mentioned in the valuation report, the company is of the opinion that no future cash inflows from the machinery will accrue. Based on the valuation of plant & machinery done for the purpose of techno economic viability study carried out by the bank the value of plant & machinery as at 31.3.2002 was Rs 17245400/-, which was further amended as under:

Amount (Rs) Value of plant & machinery as at 31.3.2002

As per valuation report 1,72,45,400/-

Less Depreciation for the period from 1.4.2002 to 31.3.2005 4.75% 24,57,470/-

Add: Machinery purchased after valuation date(Net of Dep) 69,272/-

Recoverable amount as at 31.3.2005 1,48,57,202/-

Book value as at 31.3.2005 6,25,14,551/-

Impairment loss recognized 4,76,57,349/-

19 AS per the provisions of The Employees Provident Fund and Miscellaneous Provisions Act 1956, the company, being a sick industrial company as defined in clause (0) of sub section (1) of section 3 of Sick Industrial Companies (Special Provisions) Act 1985, is entitled to deposit employer contribution equivalent to 10% in place of normal contribution of 12%. Thus the company has provided liability on this account @ 10%.

20 The company is in the process of appointing a Company Secretary as required under section 383A of the Companies Act, 1956.

21 Figures have been rounded off to the nearest rupee.

22 Previous year figures have been regrouped/rearranged wherever necessary.

23 Additional information pursuantto part-II of Schedule VI of the Companies Act, 1956 to the extent applicable:

Licenced/Installed Capacity

- Gold Jewellery Kilograms 45,000 kgs.perannum

- Studded Jewellery Carats 1,50,000 carats per annum

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Mar 31, 2003

1. Guarantees given by the Bankers (other than against secured loans) on behalf of the company Rs. 160,000 (Previous year Rs.7,935,228) to DGFT under EPCG Scheme.

2. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 4,387,606/- (Previous yearRs.4,387,606/-)

3. In the opinion of the Board, the current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4. i) The Company had imported Jewellery manufacturing machinery in the year 1995-96 under the EPCG scheme of the Government of India at a Concessional rate of import duty. During the financial year 1999-2000 the Company received a demand notice from the DGFT, asking the Company to deposit the entire duty saved and interest thereon @ 24% per annum on the amount of duty saved from the date of import of capital goods to the date of actual payment. Accordingly, a provision for the saved import duty, by debiting the same to the cost of fixed assets, and interest thereon @ 24% p.a. on annual compounding basis till 31.3.2001 was created. However, in the report of Special investigative audit (SIA), carried out as per the directives of the BIFR, M/s Thakur Vaidyanathan Aiyer & Co Chartered Accountants stated that "24% p.a. interalia means simple interest". The State Bank of India has also accepted the opinion of the SIA. Accordingly, the company, during the year 2001-02, had written back a sum of Rs 170.15 lakhs, the difference of interest on account of compounded and simple basis of calculation, provided during the previous years.

ii) As per EXIM policy, the Company was supposed to fulfil Export Obligation (EO) equal to 4 times of the value capital goods imported. Till 31.3.2001, the company made exports of Rs 244,571,243/- against the value of capital goods imported for Rs 52,831,751/- which is more than 4 times of the value of the capital goods imported, in terms. However, the DGFTs stand that the export obligation should be met in US Dollars terms (a condition stipulated in the EXIM policy) is what has resuted in the alleged shortfall in the companys export obligation.

Further, in the EXIM policy 2003 there is a provision for an extended export obligation period of 12 years for registered with Board for Industrial & Financial Reconstructions (BIFR). Since, the company is already register with BIFR and has already been declared Sick, it is entitled to complete its export obligation up to 1.3.2007. company is in the process of resolving the export obligation issue with the DGFT. Further, the Honble Delhi Court vide its order dated October 8, 2002 directed the DG FT to take a decision on the issues and objections raise by the company. The Honble High Court further directed that proceedings and decision on the show cause notice issued by the DRI on the issue of customs duty liability on account of non-fulfilment of export obligation may not given effect to for a further period of two months after DGFT decides the matter, so that in case the petitioner company) has any benefit arising out of the decision of the DGFT, the same may be available to him. In view of fact that the company had already provided a liability towards interest, to the tune of Rs 214.25 lakhs upto 31.3.200 (on simple interest basis), and the company is eligible to fulfil its export obligation upto 1.3.2007, and also that company has made exports of Rs 244,571,243/- till 31.3.2001, which is greater than 4 times CIF value of import in rupee terms, the company has, therefore, decided not to provide further liability towards interest on custom demand of Rs 73.64 Lakhs.

5. Some of the debit and credit balances are subject to confirmation/ reconciliation.

6. The Company had been pursuing the SBI, its main banker, for a one time settlement of its alleged dues. After agreeing to a settlement amount, the bank asked the company to arrange for a deposit of Rs 50 Lakhs to show it earnestness of going through with the settlement once the bank completed the paperwork. The company has earlier deposited Rs 10 Lakhs with the bank and provided the balance in the form of pay orders worth Rs 40 lakh; in August 2002. The Bank committed that the paperwork for the settlement would be completed with in a period 6 8 weeks and not later than 12 weeks under any circumstances. The bank also committed that the pay orders would not be encashed until all the approvals to the settlement were in place.

The agreed amount of the settlement was Rs 400 lacs plus Rs 13.50 lakhs towards alleged DPG commission.

Bank, vide its letter dated 7.1.2003, came back with a counter offer to the company and asked the company to submit the board resolution confirming the same. The banks counter offer was as follows;

a) Entire amount Rs 400 lakhs would be deposited (subject to adjustment of Rs 50 lakhs already deposited as initial amount) with in 90 days of the sanction by the bank being conveyed to the company, where after interes @ 15% with monthly rests would be charged/recovered from the date of the sanction being conveyed for the over due period, in the event of default.

b) Rs 13.50 lacs payable towards overdue DPG commission would be deposited with in 2 weeks of receipt of banks acceptance of OTS offer, as stated above.

c) Margin rnoney FDR aggregating to Rs 16 lakhs or so held in respect of the bank guarantees issued would also be appropriated by the bank towards compromise settlement, in addition to the aforesaid compromise offer amount.

d) Rs 3.50 lakhs would be reimbursed to the bank by EJL with in 15 days of the sanction being conveyed towards legal expenses incurred by the bank.

e) Also the company would organize with DGFT New Delhi for return of original bank guarantees bonds/documents for Rs 77.75 lakhs duly discharged by the aforesaid department, as these bank guarantees have already expired in the Banks records.

The company was required to send its confirmation in the matter together with a board resolution. The company vide its letter dated 13-1-2003, accepted the counter offer given by the bank subject to the condition that the interest on overdue payment would be as per RBl guidelines and forwarded the necessary documents for the record of the bank.

The bank vide its letter dated 24.3.2003 conveyed to the company that the OTS offer received from the company was recently put up for consideration of Banks Appropriate Authority, and the same has not been found acceptable in view of the sacrifice involved on the part of the bank.

The company however is of the opinion that the settlement has already been arrived at, as (1) the company made the offer, (2) the bank accepted the offer and asked for a payment of Rs 50 Lakhs, (3) the bank acted upon the contract by encashing the drafts of the initial deposit, (4) the bank gave the counter offer, (5) and finally the company accepted the counter offer The bank has once again approached their higher autnority for permission to complete the agreed settlement.

The company therefore has decided to give the effect of this settlement in its books of accounts for the year 2002-03, and hence shown the liability towards the bank at Rs 367 lakhs, the amount which is payable as per offer accepted by the SBI R & R Branch New Delhi, and written back the difference amount of Rs. 624.65 lacs to its Profit & Loss Account.

7. The Company has availed the sales tax exemption as per the Haryana Sales Tax Act. This exemption has expired on 28.9.2002. After this date, the company is paying sales tax as per the provisions of the act. However, as per the terms of rules framed under Haryana Sales Tax Act, the unit shall have to continue its production at least for next five years not bellow the level of average production for the preceding five years. In case, unit violates this conditions it shall be liable to make, in addition to the full amount of tax benefit availed of by it during the period of exemption, payment of interest chargeable under the Act as if no exemption was ever available to it. As the company is quite hopeful of fulfilling this condition, no provision has been made towards this contingent liability.

8. Land includes an amount of Rs 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the possession of which has been taken over by the company. However, the execution of title deeds is pending due to payment of remaining purchase consideration of Rs 43.87 Lacs to HUDA.

9. Directors Remuneration Current year (Rs) Previous year (Rs)

Salary and Allowances 288,000 288,000

10. The company operates in Single Business Segment of Jewellery and hence segment reporting as defined in Accounting Standard-17, Segment Reporting, issued by the Institute of Chartered Accountant of India is not applicable to the company

11. The company has adopted the Accounting Standard-22 Accounting for taxes on Income issued by the Institute of Chartered Accountants of India. Accordingly, Deferred Tax Liability amounting to Rs. 459.87 lacs (including Rs. 212.02 lacs for the year) on account of timing differences between book and tax profits has been considered. The company has unabsorbed depreciation and carried forwarded Business Losses giving rise to the creation of Deferred tax assets. However, on the principle of prudent business practice, the same has been recognized to the extent of Deferred tax liability The Deferred Tax asset & liability comprise of the following timing differences as on 31-03-2003:

Deferred Tax Liability Amount (In Rs. Lacs)

Higher depreciation claimed under tax laws 249.97

Profit for the year 2002-03 209.90

Total 459.87

Deferred Tax Assets

Unabsorbed Depreciation 266.09

Carried forward business loss 193.78 (Balance amount to the extent of Deferred Tax Liability)

Total 459.87

12. Earnings Per Share (As required by the AS-20 issued by the Institute of Chartered Accountants of India)

Current year (Rs) Previous year (Rs)

(A) Net profit after tax as per Profit and Loss A/c (Numerator) 54,519,161 3,366,608

(B) Weighted average of no. of Equity shares (Denominator) 7,173,300 7,173,300

(C) Basic/Diluted EPS (A/B) 7.60 0.47

13. There is no dues to small scale industrial undertakings to whom the company owes a sum outstanding for more than 30 days as on March 31, 2003 on the basis of available information with the company and to the extent identified by the Management.

14. The company has not provided the liability of Bonus as the same shall be accounted for on payment basis.

15. The company is in the process of appointing a Company Secretary as required under Section 383A of the Companies Act, 1956.

16. The provision of MAT under Section 115JB of the Income Tax Act, 1961 has not been made in view of clause (vii) of second proviso to Section 115JB(2).

17. Figures have been rounded off to the nearest rupee.

18. Previous year figures have been regrouped/rearranged wherever necessary.

Notes:

1 Licensed/Installed capacity is as certified by management.

2 Previous year figures, wherever applicable, appear in brackets.

3 These figures do not include the material received for job work and issued after job work.

4 Old Gold and Diamond ornaments include the purchase of all old Gold and Diamond, irrespective of its purity, size etc.

(Amount in Rs.) Current Year Previous Year

(f) Earning in foreign exchange during the year Export of goods (FOB-Realisation basis) 1,419,840 Nil

(g) Value of imports during the year (CIF Basis) capital Goods Nil 945,829

Spares Nil Nil

(h) Expenditure in foreign currency during the year Travelling 975,204 412,080

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Mar 31, 2002

Other Notes

1 Guarantees given by the Bankers (other than against secured loans) on behalf of the company Rs. 79,35,228/- (Previous year Rs. 77,75,228/-) to DGFT under EPCG Scheme.

2 Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 43,87,6067- (Previous year Rs. 43,87,606/)

3 In the opinion of the Board, the current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4 The Company had imported Jewellery manufacturing machinery in the year 1995-96 under the EPCG scheme of the Government of India at a concessional rate of import duty. During the financial year 1999-2000 the Company received a demand notice from the DGFT, asking the Company to deposit the entire duty saved and interest thereon @ 24% per annum on the amount of duty saved from the date of import of capital goods to the date of actual payment. Accordingly, a provision for the saved import duty, by debiting the same to the cost of fixed assets, and interest thereon @ 24% p.a. on annual compounding basis, till 31.3.2001, was created. However in the report of Special Investigative Audit (SIA), carried out as per the directives of the BIFR, M/s Thakur Vaidyanathan Aiyer &Co., Chartered Accountants stated that "24% p.a. interalia means simple interest". The State Bank of India has also accepted the opinion of the SIA. Accordingly, the company, during the current year, has written back a sum of Rs 170.15 lakhs, the difference of interest on account of compounded and simple basis of calculation, provided during the previous years.

5 As per EXIM policy, the Company was supposed to fulfil Export Obligation (EO) equal to 4 times of the value of capital goods imported. However, the licensing authority, at the time of granting the license, imposed a condition of EO equal to six times, the GIF value of imports. The company took the matter to the DGFT for correcting this error. Finally DGFT vide its letter dated 22nd May 2002 intimated the company that it had reduced the EO of the company from 6 to 4 times. Till 31.3.2001, the company made exports of Rs. 24,45,71,243/-, against the value of capital goods imported for Rs. 5,28,31,751 which is more than 4 times of the value of the capital goods imported, in rupees terms. However, the DGFTs stand that the export obligation should be met in US Dollars terms (a condition not stipulated in the EXIM policy) is what has resulted in the alleged shortfall in companys export obligation. Since, the company has already provided a liability to the tune of Rs 214.25 lakhs as at 31.3.2001 (on simple interest basis) and the only difference with the DGFT now remains that whether the export obligation should be fulfilled in Rupee term or US Dollar term, the company has, therefore, decided not to provide contingent liability towards interest on custom duty demand for the current financial year amounting to Rs. 36.82 lacs.

6 Some of the debit and credit balances are subject to confirmation/ reconciliation.

7 Debt Recovery Tribunal (DRT) in its order dated 22.6.1999 had directed the company to pay the entire dues of State Bank of India (SBI) in 35 equal quarterly instalments along with future simple interest @ 9% per annum. The company, till 31.03.2001, adjusted the payments, made to SBI, towards principle and interest on the outstanding amount. During the current financial year, management adjusted the entire payments made to SBI towards principle on the grounds that quarterly instalments along with future simple interest @ 9% per annum, interalia, means the payment made to SBI should firstly be utilized for payment of principle and once principle part is over, it should be utilized for payment of interest.

7.1 Therefore, w.e.f. 01.04.2001, the company has provided interest on this concept. However, the excess interest provided, till 31.03.2001, on the earlier system, amounting to Rs. 18.76 Lacs, has not been written back, keeping in view the ongoing One Time Settlement negotiations with the SBI.

7.2 Had company provided interest on SBI loan for the current financial year, on the system adopted till 31.03.2001, quantum of interest would have been more by Rs. 7.88 Lacs.

7.3 SBI has filed an appeal in Debt Recovery Appellate Tribunal, New Delhi (DRAT) against the order of DRT. However, the negotiations are underway with the bank for One Time Settlement (OTS).

7.4 The SBI has made a payment to foreign bank against the DPG issued by it. Keeping the nature of payment, continuing litigation and OTS proceedings in view, the company has decided not to provide the interest on this amount w.e.f 01.04.2001. Thus, interest not provided for the current financial year amounts to Rs. 14.86 Lacs.

8 Land includes an amount of Rs 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the possession of which has been taken over by the company. However, the execution of title deeds is pending due to payment of remaining purchase consideration of Rs 43.87 Lacs to HUDA.

9 Interest accrued_but not received on margin money given to State Bank of India, in the shape of FDR has been provided @ 12% p.a. with quarterly compounding.

10 Figures have been rounded off to the nearest rupee.

11 Previous year figures have been regrouped/rearranged wherever necessary.

12 Directors Remuneration (Amount in Rs.) Current year Previous year

Salary and Allowances 2,88,000 5,22,096

13 Related party disclosure, in terms of Accounting Standard-18, is given below:

(Amount in Rs.)

NAME OF THE PARTY NATURE OF RELATIONSHIP

Enchante International Ltd. Common Directors at any time during the reporting period

Vidhata Properties Pvt. Ltd. -do-

Mehrasons Jewellers Pvt. Ltd. -do-

Naraini Gems & Investments Ltd. -do-

NAME OF THE PARTY PURCHASE OF GOODS SALE OF GOODS

Enchante International Ltd. 4,01,465 96,92,550

Vidhata Properties Pvt. Ltd. 1,06,00,000 2,65,41,640

Mehrasons Jewellers Pvt. Ltd. 1,15,06,000 1,83,35,850

Naraini Gems & Investments Ltd. Nil 28,85,000

Total 2,25,07,465 5,74,55,040

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Mar 31, 2001

1. Guarantees given by the Bankers (other than against secured loans) on behalf of the company Rs. 7,775,228/- (Previous year Rs. 7,775,228) to DGFT under EPCG Scheme.

2. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 4,387,606/- (Previous year Rs. 4,387,606/-).

3. In the opinion of the Board, the current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4. The Company imported jewellery manufacturing machinery in the year 1995-96 under the EPCG scheme of the Government of India at a concessional rate of import duty, against an export obligation of six times of the CIF value of machinery imported i.e. Rs. 31.70 crores. As per the EXIM policy, the Export obligation imposed should have been 4 times of the CIF value of the machinery imported, i.e. Rs. 21.13 crores. The Export obligation period was to expire on 2/3/2000.

The Company was unable to fulfil the export obligation imposed of Rs 31.70 crores (@ 6 times import value) as a result of which, during the financial year 1999-2000 the Company has received a demand notice from the DGFT asking the Company to deposit the entire duty saved and interest thereon @ 24% per annum on the amount of duty saved from the date of import of capital goods to the date of actual payment. The company was also required to surrender Special Import Licence (SIL) equivalent to thrice of the value of import licence as penalty.

Accordingly :

(a) As on 31.3.2000, the entire amount of duty saved amounting to Rs. 15,340,875/- has been capitalised and the depreciation thereon has been charged in accordance with the recommendations in AS-6 of the Institute of Chartered Accountants of India.

(b) Amount of interest payable on the amount of duty saved has been charged to the profit and loss account.

(c) No provision has been made in the books of accounts of the premium payable for procurement of SIL, as the amount was not ascertainable.

As per notification issued by the Ministry of Commerce, the company is eligible of an extension in its export obligation period upto 31-3-2002. Till 31.3.2001, the company has fulfilled its export obligation to the tune of Rs. 24.46 crores, which more than fulfills the export obligation of 4 times the value of machinery imported, imposable under EXIM policy. The company has submitted representations to the DGFT to revise its export obligation to that imposable under the EXIM policy and these representations are pending. A writ filed in the Honourable High Court is also pending. Since this issue is still to be sorted out, the Company has provided the interest on custom duty demand, as per the demand notice issued by the DGFT.

5. Some of the debit and credit balances are subject to confirmation/ reconciliation.

6. Debt Recovery Tribunal (DRT) in its order dated 22.6.1999 has directed the company to pay the entire dues of State Bank of India (SBI) in 35 equal quarterly instalments along with simple interest @ 9% per annum. However, SBI has filed an appeal in Debt Recovery Appellate Tribunal, New Delhi (DRAT) against the order of DRT. Pending the final decision of DRAT, the provision for interest on entire dues of SBI has been made as per the existing order of the DRT.

7. Land includes an amount of Rs. 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the physical possession of which has been taken over by the company. However, the formal title deeds in respect of the above are yet to be executed.

8. Interest accured but not received, amounting to Rs. 1.70 lakhs, given to banks as margin money has been provided @ 12%.

9. Figures have been rounded off to the nearest rupee.

10. Previous year figures have been regrouped/rearranged wherever necessary.

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Mar 31, 2000

1. Guarantees given by the bankers (other than against secured loans) on behalf of the Company Rs. 77,75,228 (Previous year Rs. 77,75,228) to DGFT under EPCG Scheme.

2. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 43,87,606 (Previous year Rs. 43,87,606).

3. In the opinion of the Board, the current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4. Company had imported machinery in the year 1995-96 under EPCG Scheme of the Government of India at a concessional rate of import duty, subject to fulfilment of export obligation. Company failed to fulfil the export obligation stipulated by the Director General of Foreign Trade (DGFT), while granting the licence to the Company, for import of machinery under EPCG Scheme of the Government of India. During the current financial year Company has received a demand notice from the DGFT asking the company to deposit the entire duty saved amount and interest thereon @ 24% p.a. on fully duty saved from the date of Import of capital goods to the date of actual payment, to "Asstt. Commissioner of Customs" New Delhi. Company is also required to surrender Special Import Licence (SIL) equivalent to thrice of the value of import licence as penalty.

(a) As on 31.3.2000, the entire amount of duty saved amounting to Rs. 1,53,40,875/- has been capitalised and the depreciation thereon has been charged in accordance with the recommendations in AS-6 of the Institute of the Chartered Accountants of India.

(b) Amount of Interest payable on the duty saved, amounting to Rs. 2,80,63,000/- has been charged to the profit and loss account during the year 1999-2000 as an extra ordinary item.

(c) No provision has been made in the books of accounts of the premium payable for procurement of SIL, as the amount was not ascertainable.

5. Some of the debit and credit balances are subject to confirmation/reconciliation.

6. Debt Recovery Tribunal (DRT) in its order dated 22.6.1999 has directed the company to pay the entire dues of State Bank of India (SBI) in 35 equal quarterly instalments along-with simple interest @ 9% per annum. However, SBI has filed an appeal in Debt Recovery Appellate Tribunal, Mumbai (DRAT) against the aforesaid order of DRT. Pending the final decision of DRAT, the provision for interest on entire dues of SBI (including further payments amounting to Rs 114 Lakhs made by SBI, against guarantee to Effibanca, Italy, during 1999-2000) has been made as per the existing order of the DRT.

7. Land includes an amount of Rs. 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the physical possession of which has been taken over the company. However, the formal title deeds in respect of the above are yet to be executed.

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Mar 31, 1999

1. Contingent Liabilities :

1.1 Guarantees given by the Bankers (other than against secured loans) on behalf of the Company Rs.77,75,228 (Previous year Rs. 77,75,228).

1.2 The Company has availed the benefit of EPCG Scheme for Import of Machinery in 1995-96. As per the terms of the sanction letter, the Company has to export goods worth US$ 12,421,265 up to 2.3.2000. In case of failure to meet this export obligation, the Company may be asked to pay the difference of custom duty alongwith interest.

1.3 The Excise and Taxation officer (Enforcement) cum Assessing Authority Faridabad, has passed an order against the Company raising a sales tax demand of Rs. 59,12,797/- under Section 28(b) of HGST Act, 1973 and imposing a penalty of Rs 120 Lakhs under Section 48 of HGST Act, 1973. The Company has filed an appeal with the Joint Excise and Taxation Commissioner Rohtak, the Appellate Authority, against the above order. Since the Company is hopeful of getting the order of the Assessing Authority quashed in the appeal, it does not consider necessary to make any provision against this order, in it's books of accounts.

2. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 43,87,606 (Previous year Rs. 43,87,606).

3. In the opinion of the Board, the current assets, loans and advances have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

4. Some of the debit and credit balances are subject to confirmation/reconciliation.

5. State Bank of India (SBI) had filed a suit against the Company with Debt Recovery Tribunal (DRT) on 20.7.98 for recovery of it's dues amounting to Rs. 7,65,21,529.71. Further, suit for recovery of Rs. 69,85,264 being the amount two bank guarantees invoked, was filed by SBI on 6.4.99. DRT in it's order dated 22.6.99 has directed the company to pay the entire dues of SBI (including the amount of bank guarantee invoked) in 35 equal quarterly instalments alongwith simple interest @ 9% per annum. Accordingly entire dues of SBI, as on 31.3.99 have been classified as term loan and the provision for interest has been made as per the order of the DRT.

6. Land includes an amount of Rs 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the physical possession of which has been taken over by the Company. However, the formal title deeds in respect of the above are yet to be executed.

7. The Company has taken necessary steps to ensure Y2K compliance for all it's computer systems.

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Mar 31, 1998

1. In the opinion of the Board, the current assets, loans and advances have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities are adequate and not in excess of the amount reasonably required.

2. Some of the debit and credit balances are subject to confirmation/reconciliation.

3. The Company has filed a proposal to State Bank of India to reschedule it's outstanding loans, which is pending for consideration, in response to their legal notice for recalling the loans granted by them.

4. Land includes an amount of Rs 11.70 Lakhs, paid as part payment to HUDA against purchase of a plot, the physical possession of which has been taken over by the Company. However the formal title deeds in respect of the above are yet to be executed.

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Mar 31, 1997

Information will not available in annual report 1997-98.

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Mar 31, 1996

(iii) In the opinion of the Board, the current assets, loans and advances have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated.

xii The company commenced commercial production on 30th September 1995, consequently the previous year figures are not comparable with the current year figures.