Flawless Diamond India Ltd Auditor Reports

To the Members

Flawless Diamond (India) Limited

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Flawless Diamond (India) Limited, ("the Company") which comprise the Balance Sheet as at 31st March, 2013, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended and a summary of the significant accounting policies and other explanatory information.

MANAGEMENTS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Companys Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

AUDITORS RESPONSIBILTY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act 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 the Balance Sheet, of the state of affairs of the Company as at 31^st March, 2013;

(b) In the case of the Statement of Profit and Loss, of the loss of the Company for the year ended on that date, and

(c) In the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of subsection (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by Section 227(3.) of the Act, we report that

(a) As more explained in Note 5 of Notes on Accounts to the financial statement and to the following paragraph qualified in the annexure to the Auditors Report;

Paragraph No.	Regarding:
Annexure 4	Recovery of debts
Annexure 9 (b)	Income Tax Liabilities
Annexure 11	Defaulted in repayment of loans to banks
Note 4 of Notes on Accounts	No Manufacturing Activity

(b) 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.

(c) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(d) The Balance Sheet, Statement of Profit and Loss, and the Cash Flow Statement dealt with by this report are in agreement with the books of account.

(e) In our opinion, the Balance Sheet, Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act.

(f) On the basis of the written representations received from the directors as on 31^st March, 2013 taken on record by the Board of Directors, none of the directors is disqualified as on 31^st March, 2013 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act.

	FOR SURESH ANCHALIYA & CO.
	Chartered Accountants
	Firm Regn.No: 112492W
	SURESH ANCHALIYA
Place: Mumbai	Partner.
Date: 30th May, 2013	Membership No. 044960

ANNEXURE TO INDEPENDENT AUDITORS REPORT

[Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirement" of our report of even date]

Re :- Flawless Diamond (India) Limited ("the company")

In terms of information and explanations given to us and the books and records examined by us in the normal course of audit and to the best of our knowledge and belief, we state as under:

1. In respect of its fixed assets:

a. The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

b. As explained to us, the fixed assets have been physically verified by the Management during the year in a periodical manner, which in our opinion is reasonable, having regard to the size of the Company and nature of its assets. No material discrepancies were noticed on such physical verification.

c. In our opinion, the Company has not disposed off substantial part of fixed assets during the year and the going concern status of the Company is not affected.

2. In respect of its inventories:

a. The inventories have been physically verified by the management at regular intervals during the year. In our opinion frequency of verification is reasonable

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

c. The Company has maintained proper records of inventories. As explained to us, there were no material discrepancies noticed on physical verification of inventory as compared to the book records.

3. a. The company has not granted any Secured or unsecured loan to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1961.

b. In respect of loans, secured or unsecured taken by the company from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956

i. The company has taken loan from 3 parties and the amount involved is Rs 1,78,50,000/-

ii. The company has taken the interest free loan and the terms and conditions of loan taken are not prejudicial to the interest of the company.

iii. The payment of principal is not regular

4. In our opinion and according to the information and explanations given to us and as verified by us, internal control procedures is not commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and also for the sale of goods. During the course of our audit, we have observed that the company is in continuous failures with regard to collection of foreign debtors. The company has not taken any major initiative to recover the dues from the debtors.

5. In respect of transactions covered under Section 301 of the Companies Act, 1956, in our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements, that needed to be entered into in the register maintained under Section 301 of the Companies Act, 1956, have been so entered. The transaction made pursuant to the contracts have been made at prices which are reasonable having regards to prevailing market price at the relevant time.

6. The Company has not accepted any deposits from the public in contravention of provisions of section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 except that the loan taken from the directors of the company.

7. In our opinion, the internal audit system of the company is in commensurate with its size and nature of its business. However the company has not appointed an internal auditor as required under the Companies Act, 1956

8. The Central Government has not prescribed maintenance of cost records under Section 209 (1) (d) of the Companies Act, 1956.

9. In respect of statutory dues:

a. According to the records of the Company, there are no dues of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other statutory dues which has not deposited with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of the aforesaid dues which were outstanding as at 31^st March, 2013 for a period of more than six months from the date they became due except a sum of Rs 31,90,460/- due in respect of Income Tax demand for A.Y. 2010 -11

b. The disputed statutory dues aggregating of Rs 15.56 Crore that have not been deposited on account of disputed matters pending before appropriate authorities are as under:

Sr. No.	Name of Statute	Nature of Dues	Amount In crore)	Period to which the amount relates	Forum where dispute is pending
1	Income Tax Act, 1961	Income Tax	7.51	Amount relates to A. Y. 2008-09	Income Tax Appellate Tribunal
2	Income Tax Act, 1961	Income Tax	3.47	Amount relates to A.Y. 2009-10	Income Tax Appellate Tribunal
3	Income Tax Act, 1961	Income Tax	4.58	Amount relates to A.Y. 2010-11	Commissioner of Income Tax (Appeal)

10. The Company does not have accumulated losses. The company has incurred cash losses during the financial year-covered by our audit and also incurred cash losses in the immediately preceding financial year.

11. Based on our audit procedures and according to the information and explanation given to us, we are of the opinion that the Company has defaulted in repayment of below mentioned dues to its bankers.

Name of the Bank	Period from which payment Outstanding	Defaulted Amount (Rs In Crore) as on 31.03.2013
ICICI Bank	Since 30.06.2011	26.75
Punjab and Sind Bank	Since 30.06.2011	16.44

12. In our opinion and according to the information and explanation given to us, no loans and advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities.

13. In our opinion and according to the information and explanation given to us, the Company is not a chit fund or a nidhi / mutual benefit fund / society.

14. According to information and explanation given to us, the Company is not dealing or trading in securities, debentures and other investments.

15. The Company has not given guarantees for loans taken by others from banks or financial institutions.

16. According to the information and explanations given to us, the Company has not taken any term loan during the year.

17. According to the Cash Flow Statement and others records examined and the information and explanation given to us on overall basis, funds raised for short term basis have prima-facie not been used during the year for long-term investments.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the "register maintained under Section 301 of the companies act, 1956.

19. The Company has not raised any money by way of issue of debentures.

20. The Company has not raised any money by way of Public Issue during the year.

21. In our opinion and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year that causes the financial statements to be materially misstated.

	FOR SURESH ANCHALIYA^! CO.
	Chartered Accountants
	Firm Regn.No: 112492W
	SURESH ANCHALIYA
Place: Mumbai	Partner.
Date: 30th May, 2013	Membership No. 044960