1.  We have audited the attached balance sheet of VAIBHAV GEMS LIMITED
 (the ''Company'') as at March 31,2011, the profit and loss account for
 the year ended on that date and also the cash flow statement for the
 year ended on that date annexed there to. These financial statements are
 the responsibility of the Company''s management. Our responsibility is
 to express an opinion on these financial statements based on ouraudit.
 
 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 misstatements. An audit
 includes examining on 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 statements
 presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 3.  As required by the Companies (Auditors'' Report) Order, 2003 as
 amended by the Companies (Auditors'' Report) (Amendment) Order, 2004
 (together ''the order'') issued by the Central Government of India in
 terms of Section 227 (4A) of the Companies Act, 1956 (''the Act'') and on
 the basis of such checks as we considered appropriate and according to
 the information and explanations given to us, we give in the Annexure a
 statement of the matters specified in paragraphs 4 and 5 of the said
 Orderto the extentapplicable to the Company.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 above, we report that:
 
 a.  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;
 
 b.  in our opinion, proper books of accounts as required by law have
 been kept by the Company sofaras appears from our examination of the
 books of accounts;
 
 c.  the balance sheet, the profit and loss account and cash flow
 statement dealt with by this report are in agreement with the books of
 account;
 
 d. in our opinion. the balance sheet. the profit and loss account and
 cash flow statement of the Company dealt with by this report comply
 with the accounting standards referred to in Section 211(3C) of the
 Act, to the extent they are applicable to the Company;
 
 e.  on the basis of written representation received from the directors,
 as on March 31, 2011, and taken on record by the Board of Directors, we
 report that none of the directors of the Company, prima facie, are
 disqualified as on March 31, 2011 from being appointed as a director in
 terms of section 274(1 )(g) of the Act;
 
 f.  With out qualifying our report we draw attention to:
 
 (i) Accounting Policy 8 c with regard to identification of specific
 item of inventory and determination of estimated net realizable value
 which is based on technicaljudgement of managementand relied upon by
 us.
 
 (ii) Note No. 14 on the accounts, As explained therein, exposure of the
 Company to three foreign subsidiaries whose net worth is negative
 aggregate Rs. 529.79 crores against which no provision in excess of Rs.
 212.88 crores is considered necessary by the management.
 
 g. In our opinion and to the best of our information and according to
 explanations given to us, the said accounts, read together with
 significant accounting policies and notes on accounts, give the
 information required by the Act in the manner so required and the said
 accounts give a true and fair view in conformity with the accounting
 principles generally accepted in India:
 
 i. incase of Balance Sheet, of the state of the affairs of the Company
 as at March 31, 2011;
 
 ii. incase of Profit and Loss Account, of the profit of the Company for
 the year ended on that date; and
 
 iii.  in case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
  
 ANNEXURE TO AUDITORS''REPORT
 (Referred to in paragraph 3 of our report of even date)
 
 (i) a. The Company has maintained proper records of all Fixed Assets
 from 1st April 1998 onwards showing full particulars including
 quantitative details and location thereof. As regarding Fixed Assets
 acquired prior to above date, the Company has compiled only item wise
 lists of its fixed assets.
 
 b.  We are informed that during the year the management has physically
 verified the fixed assets and no material discrepancies were noticed on
 such verification. In our opinion, the frequency of verification is
 reasonable having regard to the size of the Company and nature of fixed
 assets.
 
 c.  As per information and explanations given to us and in our opinion,
 during the year, the Company has not disposed off any substantial part
 of fixed assets.
 
 (ii) a.  As explained to us, inventories have been physically verified
 by the management at reasonable intervals.
 
 b.  In our opinion and according to information and explanations given
 to us, the procedure of physical verification of inventories followed
 by the management is reasonable and adequate in relation to the size of
 the Company and nature of its business.
 
 c.  On the basis of examination of inventories records, we are of the
 opinion that the Company is maintaining proper records of inventories.
 As explained to us, the discrepancies noticed on physical verification
 of stock as compared to book records are not material and same have
 been properly dealt with in the books of accounts.
 
 (iii) a. The Company has granted loan to four foreign subsidiaries
 covered in the register maintained under Section 301 of the Companies
 Act, 1956. The maximum amount involved during the year was Rs. 12857.89
 lacs and the year-end balance of loan granted to such subsidiaries was
 Rs. 12857.89 lacs.
 
 b.  In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loans are not primafacie prejudicial to the interest of the
 Company.
 
 c.  The loans granted are repayable on demand. As informed, the Company
 has not demanded repayment of such loan during the year, thus, there
 has been no default on the part of the subsidiaries to which money has
 been lent. The loan given is interest free.
 
 d.  The Company has taken unsecured loan from three companies covered
 in the register maintained under Section 301 of the Act. The amount
 involved is Rs. 204.00 lacs and the year end balance is Rs. 204.00
 lacs. As explained to us the loan is interest free and there is
 nostipulation as to the repayment of the same.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with size of the Company and the nature of its business,
 for the purchase of inventories and fixed assets and for the sale of
 goods and services. We have not observed any continuing failure to
 correct major weaknesses in internal control.
 
 (v) a. According to the information and explanations given to us, we
 are of the opinion that the particulars of contract or arrangement
 referred in Section 301 of the Act have been entered into the register
 maintained under Section 301 of the Act.
 
 b. As informed to us, due to the peculiar nature of goods
 sold/purchased, no comparables for prevailing market prices are
 available and the ascertainment of the same involves technical
 judgment. In absence of information relatable to prevailing market
 prices we are unable to comment whether the transactions made in
 pursuance of contracts or arrangements entered in the register
 maintained under Section 301 of the Act and exceeding the value of
 rupees five lacs in respect of any party during the year have been made
 at prices which are reasonable having regard to prevailing market
 prices at there levant time.
 
 (vi) In our opinion and according to information and explanations given
 to us, the Company during the year has not accepted any deposits from
 the public to which the provisions of Section 58A and 58AA or any other
 relevant provisions of the Act are applicable. No order has been passed
 by Company Law Board or National Company Law Tribunal or Reserve Bank of
 India or any court or any other tribunal in this regard.
 
 (vii) In our opinion. the Company has an internal audit system
 commensurate with the size of the Company and nature of its business.
 
 (viii) a. The Company is generally regular in depositing with
 appropriate authorities undisputed statutory dues including provident
 fund, investor education protection fund, employees'' state insurance,
 income tax, sales tax, wealth tax, service tax, custom duty, excise
 duty, cess and any other material statutory dues applicable to it.
 
 b.  According to the information and explanations given to us, no
 undisputed amounts payable in respect of the aforesaid statutory dues
 were in arrears as at the last day of the financial year for a period
 of more than six months from the date they became payable.
 
 c.  According to the information and explanations given to us, there
 are no dues of sales tax, Income tax, Custom duty, excise duty, service
 tax and cess which have not been deposited on account of any dispute.
 
 (ix) In our opinion, the accumulated loss of the Company as on March
 31, 2011 does not exceeds fifty percent of its net
 
 worth. The Company has not incurred cash losses during the current
 financial year. The Company had incurred cash losses in the immediately
 preceding financial year.
 
 (x) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 banks or financial institutions.
 
 (xi) As informed, the Company has not granted any loans and advances on
 the basis of security by way of pledge of shares, debentures and
 othersecurities.
 
 (xii) In our opinion, the terms and conditions on which the Company has
 given guarantees for loans taken by others from banks or financial
 institutions are prima facie not prejudicial to the interest of the
 Company.
 
 (xiii) The Company has not taken any term loans during the year.
 
 (xiv) According to the information and explanations given to us and on
 overall examination of the balance sheet of the Company as at March 31,
 2011, we report that no fund raised on short term basis have been used
 for long term purposes.
 
 (xv) According to the information and explanations given to us, the
 Company has not made any preferential allotment of shares during the
 yearto parties covered in the register maintained under Section 301 of
 the Act.
 
 (xvi) During the year covered by our report the Company has not raised
 any money byway of public issue.
 
 (xvii) During the course of our examination of the books and records of
 the company, carried out in accordance with the generally accepted
 auditing practices in India, and according to the information and
 explanations given to us, we have neither come across any instance of
 fraud on or by the company, noticed or reported during the year, nor
 have we been informed of such case by the management.
 
 (xviii) The following clauses of paragraphs 4 & 5 of the said Order are
 not applicable to the Company and has not been reported.  Clause
 (viii), Clause (xiii), Clause (xiv) and Clause (xix)
 
 For Haribhakti & Co.                          For B. Khosla & Co.
 
 Chartered Accountants                         Chartered Accountants
 
 FRN NO.103523W                                FRN No. 000205C
 
 Chetan Desai                                  Sandeep Mundra
 
 Partner                                       Partner
 
 Membership No. 17000                          Membership No. 75482
 
 Place: Jaipur
 
 Date :7th May, 2011