===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

                                   (Mark One)

   [ ]    Registration statement pursuant to Section 12(b) or (g) of the
          Securities Exchange Act of 1934

   [X]    Annual report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

          For the fiscal year ended March 31, 2006
          ----------------------------------------

   [ ]    Transition Report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

   [ ]    Shell Company Report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

   Date of event requiring this shell company report .................

          For the transition period from _____________ to _____________


                        Commission File Number 000-30735

                            REDIFF.COM INDIA LIMITED
             (Exact name of Registrant as specified in its charter)

                                 Not Applicable
                 (Translation of Registrant's name into English)

                                Republic of India
                 (Jurisdiction of incorporation or organization)

                          Mahalaxmi Engineering Estate
                        1st Floor, L. J. First Cross Road
                                  Mahim (West)
                             Mumbai - 400016, India
                                +91-22-2444-9144
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:

       Title of Each Class         Name of Each Exchange on Which Registered
              None                               Not Applicable


           Securities registered pursuant to Section 12(g) of the Act:

                           American Depositary Shares,
   each represented by one-half of one equity share, par value Rs.5 per share.
                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                   of the Act:

                                 Not Applicable
                                (Title of Class)

<PAGE>

         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report: 14,539,600 equity shares.

         Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act of 1933.

        Yes [ ]                          No [X]

         If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.

        Yes [X]                          No [  ]

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

        Yes [X]                          No [  ]

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):

   Large accelerated filer [ ]  Accelerated filer [X]  Non-accelerated filer [ ]

         Indicate by check mark which financial statement item the registrant
has elected to follow.

         Item 17 [ ]                     Item 18 [X]

         If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

         Yes [ ]                         No [X]


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                  Page
                                                                                  ----
<S>                                                                                <C>

CROSS REFERENCE SHEET................................................................1
CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS...................................3
FORWARD-LOOKING STATEMENTS...........................................................4
EXCHANGE RATES.......................................................................5
SELECTED CONSOLIDATED FINANCIAL DATA.................................................6
RISK FACTORS.........................................................................8
BUSINESS............................................................................26
         Overview ..................................................................26
         Our Markets................................................................27
         Our Opportunity............................................................27
         Our Strategy...............................................................28
         Our Product and Service Offerings..........................................28
         Intellectual Property......................................................37
         Facilities.................................................................37
         Legal Proceedings..........................................................38
         Ownership of Foreign Securities............................................42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.....................................................................43
MANAGEMENT..........................................................................55
RELATED PARTY TRANSACTIONS..........................................................65
EXCHANGE CONTROLS...................................................................66
TRADING MARKET......................................................................69
RESTRICTION ON FOREIGN OWNERSHIP OF INDIAN SECURITIES...............................70
PRINCIPAL SHAREHOLDERS..............................................................74
TAXATION............................................................................76
USE OF PROCEEDS.....................................................................82
CONTROLS AND PROCEDURES.............................................................83
PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................................84
PRESENTATION OF FINANCIAL INFORMATION...............................................85
ADDITIONAL INFORMATION..............................................................86
EXHIBIT INDEX.......................................................................93
INDEX TO FINANCIAL STATEMENTS......................................................F-1
</TABLE>


<PAGE>


                              CROSS REFERENCE SHEET

PART I

Item 1.       Identity of Directors, Senior Management and Advisers

              Not applicable.

Item 2.       Offer Statistics and Expected Timetable

              Not applicable.

Item 3.       Key Information

              See "Exchange Rates", "Risk Factors" and "Selected Consolidated
              Financial Data".

Item 4.       Information on the Company

              See "Business", "Management's Discussion and Analysis of Financial
              Condition and Results of Operations" and "Additional Information".

Item 4A.      Unresolved Staff Comments

              Not applicable.

Item 5.       Operating and Financial Review and Prospects

              See "Risk Factors" and "Management's Discussion and Analysis of
              Financial Condition and Results of Operations".

Item 6.       Directors, Senior Management and Employees

              See "Management".

Item 7.       Major Shareholders and Related Party Transactions.

              See "Principal Shareholders" and "Related Party Transactions".

Item 8.       Financial Information

              See the Report of Independent Registered Public Accounting Firm,
              U.S. GAAP Consolidated financial statements and the notes thereto
              for Rediff.com India Limited for the fiscal years ended March 31,
              2004, 2005 and 2006 and the related three-year period ended March
              31, 2006. Also see "Business - Legal Proceedings" and
              "Management's Discussion and Analysis of Financial Condition and
              Results of Operations".

Item 9.       The Offer and Listing

              See "Trading Market".

Item 10.      Additional Information

              See "Management's Discussion and Analysis of Financial Condition
              and Results of Operations - Acquisitions and Divestments - Value
              Communications Corporation", "Exchange Controls", "Restriction on
              Foreign Ownership of Indian Securities", "Taxation" and
              "Additional Information".

Item 11.      Quantitative and Qualitative Disclosures About Market Risk

              See "Management's Discussion and Analysis of Financial Condition
              and Results of Operations - Market Risks".

                                      1
<PAGE>

Item 12.      Description of Securities Other than Equity Securities

              Not applicable.

PART II

Item 13.      Defaults, Dividend Arrearages and Delinquencies

              Not applicable.

Item 14.      Material Modifications to the Rights of Security Holders and Use
              of Proceeds

              See "Use of Proceeds".

Item 15.      Controls and Procedures

              See "Controls and Procedures".

Item 16A.     Independent Audit Committee Financial Expert

              See "Management".

Item 16B.     Code of Ethics

              See "Management".

Item 16C.     Principal Accountant Fees and Services

              See "Principal Accountant Fees and Services".

Item 16D.     Exemptions from the Listing Standards for Audit Committees

              Not applicable.

Item 16E.     Purchases of Equity Securities by the Issuer and Affiliated
              Purchasers

              Not applicable.

PART III

Item 17.      Financial Statements

              Not applicable.

Item 18.      Financial Statements

              See the Report of Independent Registered Public Accounting Firm,
              U.S. GAAP Consolidated financial statements and the notes thereto
              for Rediff.com India Limited for the fiscal years ended March 31,
              2004, 2005 and 2006 and the related three-year period ended March
              31, 2006.

Item 19.      Exhibits

              See the Exhibit Index and the attached exhibits.

                                      2
<PAGE>

               CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS

         In this annual report all references to "we", "our", "us", "Rediff",
"Rediff.com" and the "Company", unless otherwise relevant to the context, are to
Rediff.com India Limited, a limited liability company organized under the laws
of the Republic of India, and its consolidated subsidiaries. References to
"U.S." or the "United States" are to the United States of America, its
territories and its possessions. References to "India" are to the Republic of
India.

         In this annual report, references to "$" or "US$" or "dollars" or "U.S.
dollars" are to the legal currency of the United States and references to "Rs."
or "Rupees" or "Indian Rupees" are to the legal currency of India. Our financial
statements are prepared in Indian Rupees and presented in U.S. dollars except in
case of our U.S. subsidiaries which are prepared in U.S. dollars. Our financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP"). References to a
particular "fiscal" or "financial" year are to Rediff's fiscal year ended March
31 of such year.

         Although we have presented Indian Rupee amounts in this annual report
in U.S. dollars, this does not mean that the Indian Rupee amounts referred to
have been, or could be, converted into dollars at any particular rate, the rates
stated below in the section of this annual report entitled "Exchange Rates", or
at all. Except as otherwise stated in this annual report and for the information
derived from our financial statements included in this annual report, all
translations from Indian Rupees to U.S. dollars contained in this annual report
are based on the noon buying rate, in the City of New York, on March 31, 2006,
for cable transfers in Indian Rupees as certified for customs purposes by the
Federal Reserve Bank of New York, which was Rs. 44.48 to US$1.00.



                                      3
<PAGE>

                           FORWARD-LOOKING STATEMENTS

         We have included statements in this annual report which contain words
or phrases such as "may", "will", "aim", "will likely result", "believe",
"expect", "will continue", "anticipate", "estimate", "intend", "plan",
"contemplate", "seek to", "future", "objective", "goal", "project", "should",
"will pursue" and similar expressions or variations of such expressions, that
are "forward-looking statements", within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and reflect our current expectations. We have made
forward-looking statements with respect to the following, among others:

     o        our goals and strategies;

     o        our recently acquired businesses and other acquisitions,
              investments and divestments;

     o        the importance and expected growth of Internet  technology,
              including sales of personal computers and mobile phones;

     o        the pace of change in the Internet market;

     o        the demand for Internet services; and

     o        advertising demand and revenues.

         Actual results may differ materially from those suggested by the
forward-looking statements due to certain risks or uncertainties associated with
our expectations with respect to, but not limited to, our ability to
successfully implement our strategy, our ability to successfully integrate the
businesses we have acquired with our business, demand for e-commerce and changes
in the Internet marketplace, technological changes, investment income, cash flow
projections and our exposure to market risks. By their nature, certain of the
market risk disclosures are only estimates and could be materially different
from what actually occur in the future. As a result, actual future gains, losses
or impact on net interest income could materially differ from those that have
been estimated.

         In addition, other factors that could cause actual results to differ
materially from those estimated by the forward-looking statements contained in
this document include, but are not limited to, general economic and political
conditions in India and the United States, changes in the value of the Rupee,
foreign currency exchange rates, equity prices or other rates or prices, and the
level of Internet penetration in India and globally, changes in domestic and
foreign laws, regulations and taxes, changes in competition, and other factors
beyond our control. For further discussion on the factors that could cause
actual results to differ, see the discussion under "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this annual report. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. In addition, readers should review the
other information contained in this annual report and in our periodic reports
filed with the U.S. Securities and Exchange Commission (the "SEC"), from time to
time. We undertake no obligation to update forward-looking statements to reflect
events or circumstances after the date hereof.



                                      4
<PAGE>

                                 EXCHANGE RATES

         Fluctuations in the exchange rate between the Indian Rupee and the U.S.
dollar may affect the market price of our American Depositary Shares (the
"ADSs") which, from June 24, 2002, have been traded on the NASDAQ Capital Market
(formerly the NASDAQ Small Cap Market). Such fluctuations will also affect the
U.S. dollar conversion by our depositary for the ADSs, Citibank, N.A., (the
"Depositary"), of any cash dividends paid in Indian Rupees on our equity shares
represented by the ADSs.

         The following table sets forth, for the periods indicated, certain
information concerning the exchange rates between Indian Rupees and U.S. dollars
based on the noon buying rate in the City of New York for cable transfers in
Rupees as certified for customs purposes by the Federal Reserve Bank of New
York:

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,           Period End (1)    Average(1)(2)        High              Low
---------------------------           --------------    -------------        ----              ---
<C>                                          <C>              <C>              <C>              <C>
2002 ............................        Rs. 48.83        Rs. 47.81        Rs. 48.91        Rs. 46.58
2003 ............................            47.53            48.36            49.07            47.53
2004 ............................            43.40            45.78            47.46            43.40
2005 ............................            43.62            44.87            46.45            43.27
2006 ............................            44.48            44.21            46.26            43.05

</TABLE>

         The following table sets forth the high and low exchange rates for the
previous six months and are based on the average of the noon buying rate in the
City of New York on the last business day of each month during the period for
cable transfers in Indian Rupees as certified for customs purposes by the
Federal Reserve Bank of New York:

Month                                                High               Low
                                                   -----------     -------------
March 2006 ...................................     Rs.  44.58        Rs.  44.09
April 2006 ...................................          45.09             44.39
May 2006 .....................................          46.22             44.69
June 2006 ....................................          46.25             45.50
July 2006 ....................................          46.83             45.84
August 2006 ..................................          46.61             46.32
September 2006 (until September 26, 2006) ....          46.38             45.74

         On September 26, 2006, the noon buying rate in the City of New York
was Rs. 45.77 to US$1.00.

______________________

Notes:

(1)      The noon buying rate at each period end and the average rate for each
         period differed from the exchange rates used in the preparation of our
         financial statements.

(2)      Represents the average of the noon buying rate on the last day of each
         month during the period.

                                      5
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

         Our consolidated financial statements are presented in U.S. dollars and
prepared in accordance with U.S. GAAP. The selected balance sheet data set forth
below as of March 31, 2005 and 2006 and the selected statement of operations
data for the fiscal years ended March 31, 2004, 2005 and 2006 has been derived
from our audited financial statements presented elsewhere in this annual report
and which have been audited by Deloitte Haskins & Sells, an independent
registered public accounting firm. The selected balance sheet data set forth
below as of March 31, 2002, 2003 and 2004 and the selected statement of
operations data for the fiscal years ended March 31, 2002 and 2003 are derived
from U.S. GAAP financial statements which are not included in this annual
report.*

<TABLE>
<CAPTION>
                                                             Fiscal Years Ended March 31, -
                                         ---------------------------------------------------------------------------
                                            2002              2003            2004           2005            2006
                                         ------------    ---------------   -----------    -----------     ----------
                                                         (in US$ thousands, except per share data)

<S>                                          <C>               <C>             <C>             <C>           <C>
Statement of Operations data:
Revenues ..................                US$7,859          US$8,572        US$9,446        US$12,627     US$18,701
Cost of revenues ..........                   5,098             5,560           4,738            5,113         5,039
Operating expenses ........                  20,938            14,903           7,927            9,227        12,683
(Loss) Income from continuing
    operations ............                (16,101)          (12,177)         (3,349)          (1,220)         1,213

(Loss) Income from discontinued
    operations ............
                                              1,336           (6,804)         (2,371)            (208)            --
Net (loss) income..........             US$(14,765)       US$(18,981)      US$(5,720)       US$(1,428)     US $1,213
(Loss) Earnings per Equity Share
    (from continuing operations)
    - basic ...............               US$(1.25)        US$ (0.95)       US$(0.26)       US$ (0.10)      US$0.089
    (from discontinued
    operations) - basic ...                 US$0.10        US$ (0.53)      US$ (0.19)        US$(0.01)            --
(Loss) Earnings per Equity Share
    - basic ...............              US$ (1.15)        US$ (1.48)      US$ (0.45)       US$ (0.11)      US$0.089
(Loss) Earnings per Equity Share
    (from continuing operations)
    - diluted .............               US$(1.25)        US$ (0.95)       US$(0.26)       US$ (0.10)      US$0.088
    (from discontinued
    operations) - diluted .                 US$0.10        US$ (0.53)      US$ (0.19)        US$(0.01)            --
(Loss) Earnings per Equity Share
    - diluted .............              US$ (1.15)        US$ (1.48)      US$ (0.45)       US$ (0.11)      US$0.088
Weighted average number of equity
    shares (in thousands)
- Basic                                      12,795            12,795          12,800           12,850        13,487
- Diluted                                    12,795            12,795          12,800           12,850        13,764


                                                                    As of March 31,
                                         ---------------------------------------------------------------------------

                                           2002              2003             2004            2005            2006
                                         ------------    -------------    -------------    -----------    ----------
                                                                   (in US$ thousands)

Balance Sheet Data:
Cash and cash equivalents .               US$26,520         US$14,384       US$11,639        US$10,069     US$53,094
Current assets ............                  30,538            18,015          15,293           15,323        60,652
Current liabilities .......                   8,126             4,777           3,825            5,878         7,239
Total assets ..............                  52,250            30,332          24,868           25,690        74,110
Total shareholders' equity                   44,004            25,541          21,027           19,797        66,870

</TABLE>

                                                            6
<PAGE>

___________________________________
*    The selected financial data set forth above should be read in conjunction
     with Item 5. "Operating and Financial Review and Prospects" and the
     financial statements and the notes to those statements included elsewhere
     in this annual report.


                                       7
<PAGE>

                                  RISK FACTORS

An investment in our ADSs involves a high degree of risk. You should carefully
consider the following information about risks, together with the other
information contained in this annual report on Form 20-F, including our
consolidated financial statements and related notes, before you decide to buy
our ADSs. If any of the circumstances or events described below actually arises
or occurs, our business, results of operations and financial condition would
likely suffer. In any such case, the market price of our ADSs could decline, and
you may lose all or part of your investment. This annual report also contains
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of many factors, including the risks faced by us
described below and elsewhere in this annual report.

Risks Related to our Business

Pending and potential litigation against us could have a material adverse effect
on our business and operating results and lower the market price of our ADSs.

Khanna Action
-------------

         On April 16, 2001, four of our officers and directors, including Ajit
Balakrishnan, our Chairman and Managing Director, a group of investment banks
that acted as underwriters in our June 2000 initial public offering (the "IPO")
and listing of ADSs and we, were named as defendants in Khanna v. Rediff.com
India Ltd. et al., (the "Khanna Action"), a class action lawsuit filed in the
U.S. District Court for the Southern District of New York. The plaintiffs allege
that our registration statement filed with the SEC contained misleading
statements and omissions in violation of the Securities Act, the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 under the
Exchange Act. The plaintiff class in this lawsuit has been defined as all
persons who purchased ADSs from the time of the IPO through April 14, 2001 and
seeks unspecified damages. Subsequent to the filing of the Khanna Action,
several other actions have been filed against us and the other defendants
setting forth substantially the same allegations. All the cases have been
consolidated before a single judge in the United States District Court for the
Southern District of New York.

Shives Action
-------------

         On June 5, 2001, twenty-four companies, including us, who had issued
securities to the public in their initial public offerings, together with the
investment banks who acted as underwriters in these initial public offerings,
were named as defendants in the action of Shives et al. v. Bank of America
Securities, LLC et al., (the "Shives Action"), a class action lawsuit filed in
the U.S. District Court for the Southern District of New York. Also named as
defendants in this lawsuit were four of our officers and directors, including
Ajit Balakrishnan. The plaintiffs in this lawsuit allege that the underwriter
defendants combined and conspired to inflate the underwriting compensation they
received in connection with the initial public offerings of the defendant
companies, to manipulate and inflate the prices paid by plaintiffs for
securities issued in the initial public offerings and to restrain and suppress
competitive pricing for underwriting compensation. The plaintiffs allege claims
pursuant to the U.S. Sherman Antitrust Act, 1890, as amended, the U.S. Clayton
Antitrust Act, 1914, as amended, and the Securities Act against the underwriter
defendants. The plaintiffs further allege that the defendants, including us and
certain of our officers and directors, made material misstatements and omissions
in violation of the Securities Act and the Exchange Act by concealing or failing
to disclose the compensation earned by the underwriters in the initial public
offerings. As against us and our officers and directors, the Complaint defines a
"Rediff.com Sub-Class" consisting of all persons who purchased securities of
Rediff.com India Limited from the time of the IPO through April 4, 2001 and
seeks unspecified damages. This case has been consolidated with several hundred
other similar cases filed against other issuers who had IPOs in 2000 and 2001.

         On November 24, 2003, plaintiffs' counsel in the Khanna action and
Shives action filed a Consolidated Amended Securities Class Action Complaint
("Consolidated Complaint") which incorporates the material allegations from
Khanna action and Shives action. On January 30, 2004, we and our officers and
directors filed a motion to dismiss the Consolidated Complaint. The underwriter
defendants filed a separate motion to dismiss. On October 15, 2004 the District
Court judge granted in part and denied in part the motions to dismiss and set a
pre-trial discovery schedule. At a status conference held on January 26, 2005,
the District Court judge set a deadline for pre-trial fact discovery and
referred the parties to a magistrate judge for settlement discussions. On May
11, 2001, we received from our underwriters in our IPO a demand for


                                      8
<PAGE>

indemnification of the underwriters' legal fees and liabilities. Our Board of
Directors resolved to indemnify our officers and directors named as defendants
against their legal fees and liabilities, to the extent permitted under Indian
law. At the time of the IPO, we purchased Directors & Officers liability
insurance (the "D&O Policy"), providing coverage against federal securities law
claims. The D&O Policy includes coverage for our cost of defending the class
action lawsuits, our indemnification liabilities to our officers and directors,
and our indemnification liabilities to our underwriters. The coverage of the D&O
Policy is denominated in Indian Rupees, but the policy proceeds are payable in
U.S. dollars. Based on the noon buying rate at March 31, 2006, the face amount
of the D&O Policy is approximately US$20.1 million. The proceeds of the D&O
Policy available to satisfy any judgment against us, or any judgment against
persons whom we are obligated to indemnify, will be reduced by the amount of the
legal fees and associated expenses incurred in the course of our defense and the
defense of the individual defendants and the underwriters which are paid from
the D&O Policy. The D&O Policy includes a deductible of approximately
US$250,000(based on the noon buying rate at March 31, 2006), which must be paid
by us before the D&O Policy proceeds would be available. The D&O Policy contains
various exclusions, which, if met, may result in the denial of insurance
coverage. We have been advised by the insurance carriers who wrote the D&O
Policy that they are not aware of any facts or circumstances that would cause
any of the exclusions to apply, but that the carriers have reserved their rights
to claim that the exclusions do apply if any such facts or circumstances come to
their attention.

RCC Complaint
-------------

         On June 21, 2000, we and our directors and others (Ajit Balakrishnan,
Arun Nanda, Abhay Havaldar, Sunil Phatarphekar, Charles Robert Kaye and Tony
Janz) were named as accused in a criminal complaint (RCC Complaint Number 76 of
2000, the "RCC Complaint"), filed by Mr. Abinav Bhatt, a 22 year old student,
before the Judicial Magistrate, First Class, Pune, India, alleging commission of
an offense under Section 292 of the Indian Penal Code, 1860, as amended, or IPC,
for distributing, publicly exhibiting and putting into circulation obscene,
pornographic and objectionable material. The Complaint alleged that we, through
our website "www.rediff.com", provided a search facility that enabled Internet
users to view pornographic, objectionable and obscene material. On November 27,
2000, the Judicial Magistrate passed an order in the RCC Complaint holding that
a prima facie case under Section 292 of the IPC had been made out against us and
directed commencement of criminal proceedings against all the defendants. A
criminal writ petition, or Writ Petition, was filed in the High Court of Mumbai
(Criminal Writ Petition Number 1754 of 2000) seeking, among other things, relief
setting aside of the order of the Judicial Magistrate. The High Court of Mumbai
in its order dated December 20, 2000, while granting ad-interim relief to the
petitioners in the Writ Petition, stayed the order of the Judicial Magistrate
pending final disposal of the Writ Petition. The Writ Petition has been admitted
by the High Court of Mumbai. In the event that we are unsuccessful in our
defense, we and our directors may face both criminal penalties and monetary
fines.

IMI Complaint
-------------

         A complaint was filed by the Indian Music Industry ("IMI"), a society
representing various music companies in Magistrate's Court India against three
of our directors. The complaint alleges that by providing links to MP3 sites
through its directory we have been guilty of violating Section 51 of the Indian
Copyright Act 1957. The complaint alleges that the MP3 sites to which links were
provided permitted downloading of music, which had not been authorized to be so
downloaded by copyright owners who are members of IMI. Our directors are named
as parties to the lawsuit because, according to the complaint, the directors are
in charge of our affairs and are hence deemed to be guilty of committing the
offense. Our directors have presently been exempted from personal appearance.
Our directors filed an application for discharge of the complaint before the
Magistrate. However, a recent judgment of the Supreme Court of India has held
that applications for discharge cannot be heard by the Magistrate who will be
conducting the trial in relation to a pending complaint. As such, the
application for discharge of the complaint before the Magistrate now needs to be
withdrawn and a fresh application for quashing the complaint will have to be
filed in the High Court. Such application is under preparation and will be filed
shortly. If they are unsuccessful after exhausting all legal remedies, our
directors could face both criminal penalties and monetary fines.

         All of the foregoing actions require management time and cost. In
addition, we can give no assurances that we will be successful in our defense of
such actions. If any of our directors are subject to criminal penalties, we may
be deprived of their services as directors.



                                      9
<PAGE>

Other proceedings
-----------------

         We are also subject to other legal proceedings and claims, which have
arisen in the ordinary course of our business. Those actions, when ultimately
concluded and determined, will not, in the opinion of management, have a
material effect on our results of operations or financial position.

         For additional information regarding pending litigation filed against
us, please see "Business- Legal Proceedings" in this annual report.

A slowdown in the Indian and the U.S. economies and in certain sectors could
adversely affect our business, operating results and financial condition.

         We are dependent on the health of the Indian and the U.S. economies. A
slowdown in the United States and Indian economies or sectors in which our
clients are based, including the Internet and technology-based sectors, or an
overall reduction in consumer and business spending, could have a materially
adverse impact on our business and our prospects. A significant portion of our
revenues are derived from retail customers and from companies that operate in
various sectors, including the Internet and technology-based sectors as well as
insurance, financial services, banking and consumer goods sectors. Many of these
sectors could experience slowdown in growth. As a result, advertisers may reduce
advertising expenditures or may not spend as much money on online and offline
advertising as anticipated. A prolonged or material decline in Internet
advertising expenditure will have a material adverse effect on our operating
results. Further, a slowdown in the Indian and U.S. economies may make it
difficult for us to raise money in the equity and debt markets on terms
favorable to us or at all, which may have an adverse effect on our financial
condition and operating results.

We have a history of losses. We may continue to incur losses and we may not
achieve or maintain profitability.

         We have incurred significant net losses and negative cash flows since
our inception in January 1996. As of March 31, 2006, we had an accumulated
deficit of approximately US$54.6 million. While we earned a net income of US$1.2
million for the fiscal year ending March 31, 2006, we may in the future incur
additional net losses and negative operating cash flows. We expect to increase
our spending as we continue to expand our services, advertise and promote our
brand, and invest in the expansion of our infrastructure and sales and marketing
staff. We have incurred and in the future may incur expenses in connection with
acquisitions and investments. Accordingly, we will need to generate significant
additional revenues in order to remain profitable. We may not be able to do so.
Our business model is not yet proven in India or the United States, and we
cannot assure you that we will sustain our profitability or that we will not
incur operating losses in the future. If we are unable to maintain
profitability, we will be unable to build a sustainable business. In this event,
the price of our ADSs and the value of your investment would likely decline.

Intense competition in our businesses could prevent us from sustaining our
profitability.

         Our businesses compete in various sectors including with Indian and
foreign online content and services providers, and traditional print and
television media companies. Many of our competitors have a longer operating
history, greater name recognition and customer base, and greater management,
financial, technical, marketing, sales, brand, and other resources than we do.
They can use their superior experience and resources in a variety of competitive
ways, including by investing more aggressively in research and development,
creating superior content, making acquisitions, and competing more aggressively
for advertisers. There has also been a trend toward industry consolidation so
our smaller competitors today may become part of larger competitors in the
future. If our competitors in our online business are more successful than we
are at generating visitors and website traffic due to superior content and other
service offerings or our competitors in our publication business are more
successful at growing their circulation and advertising share, our revenues may
decline.

         In addition to Internet companies, our online business faces
competition from other companies that offer traditional media advertising
opportunities, including print and television companies. Most large advertisers
have set advertising budgets, a portion of which is allocated to Internet
advertising. For the near future, we expect that large advertisers will continue
to focus their advertising efforts on traditional media. If we fail to convince
these companies to spend a larger portion of their advertising budgets with us,
or if our existing advertisers reduce the amount they spend on Internet
advertising, our operating results may decline.

         Competition for visitors, customers, subscribers, advertisers and
e-commerce partners is intense and is expected to increase significantly in the
future because there are no substantial barriers to entry in our market.

                                      10
<PAGE>


Furthermore, it is difficult to predict which online advertising pricing model,
if any, will emerge as the industry standard. This makes it difficult to predict
our future advertising rates and revenues.

         Our publication business in the United States and Canada faces
competition from not only Internet-based publications but also from other
publications targeted at Indian-Americans and from television channels featuring
Indian news and programming. In addition, competition for paying subscribers for
our India Abroad newspaper, which is subscription-based, is intense due to the
presence of other paid newspapers such as New India Times, Indian Express and
India West. Further, our publications also face competition from free newspapers
and from electronic media, such as television and online publications and
services.

         Our revenues could be adversely affected if we are unable to adapt to
new forms of pricing for the services and products we offer. Increased
competition or the actions of our existing competitors may result in:

     o    loss of visitors and website traffic;

     o    loss of paid subscribers;

     o    loss of advertisers;

     o    reduced operating margins;

     o    loss of market share; and

     o    diminished value in our services.

         Any one of these factors could materially and adversely affect our
business, financial condition and operating results. For additional information
regarding our competition, please see "Business - Competition" in this annual
report.

Our quarterly operating results may fluctuate significantly and may fail to meet
the expectations of securities analysts and investors, which may cause the price
of our ADSs to decline.

         Our quarterly results may also fluctuate significantly in the future
based on a variety of factors. These factors could affect our long-term
performance. Some of these factors include:

     o    increased competition;

     o    lower than expected revenues from our product and service offerings;

     o    changes in pricing policies for our product and service offerings;

     o    increase in personnel, marketing and other operating expenses;

     o    our ability to attract new users and to retain existing users at
          reasonable costs;

     o    our ability to adequately maintain, upgrade and develop our website,
          our computer network and the systems that we use to process customer
          orders and payments;

     o    the timing of our expansion plans in India and other geographic
          markets;

     o    seasonality in retail sales;

     o    technical difficulties, system or website downtime or Internet
          service disruptions; and

     o    entry into new businesses requiring substantial investments.

         Our operating results are volatile and can be difficult to predict. As
a result, quarter-to-quarter comparisons of our operating results may not be
good indicators of our future performance. In addition, it is possible that our


                                      11
<PAGE>

operating results in any future quarter could be below the expectations of
investors generally and any published reports or analyses on us. In that event,
the market price of our ADSs may decline.

We may not be able to grow our business if advertising in our markets does not
expand.

Online Advertising
------------------

         Our business strategy depends on the anticipated growth of online
advertising in our markets and the growth of our revenues depends on increased
revenues generated by online advertising. We anticipate that a high portion of
our future revenues will continue to be derived from online advertising on our
website. Online advertising is an evolving business and our ability to generate
and maintain significant advertising revenues will (among others) depend on:

     o    our ability to attract and retain advertisers at profitable rates in
          light of intense competition;

     o    our ability to generate and continue to grow a large community of
          users with demographics attractive to advertisers;

     o    advertisers' acceptance of the Internet as an effective and
          sustainable medium;

     o    the effectiveness of our advertising delivery, tracking and
          reporting systems; and

     o    our ability to adapt, including technologically, to new forms of
          Internet advertising.

         Different pricing models are used to sell online advertising, and it is
difficult to predict which, if any, of the models will emerge as the industry
standard. This makes it difficult to project our future advertising rates and
revenues. A reduction in traffic on our website may cause new advertisers not to
enter into contracts with us and could cause existing advertisers not to renew
their contractual arrangements with us, each of which, in turn, would reduce our
potential advertising revenues. Additionally, any development of Internet
software that blocks advertisements before they appear on a user's screen may
hinder the growth of online advertising and could materially and adversely
affect our ability to grow our online advertising revenues and our business.
Also, a slowdown in economic growth, and in particular a slowdown in the growth
of companies that advertise on the Internet, may result in a reduction in our
advertising revenues.

         Our contracts with advertising customers do not commit them to continue
to provide us with a specific volume of business and can typically be terminated
by them with or without cause, with little or no advance notice and without
penalty. Additionally, our contracts with advertising customers are usually
limited to a specific project and/or for a specific time period and not any
future work. There are also a number of factors other than our performance, and
not within our control, that could cause the loss of advertising customers.
Early termination of material contracts or non-renewal of an expired material
contract could have a material adverse effect on our business and on our future
financial performance.

Newspaper Advertising
---------------------

         Our business strategy in the United States and Canada for our India
Abroad business depends primarily on growth in advertising in our publications.
Competition to provide news and information regarding India or of interest to
Indian-Americans in these markets is intense, with competitors including
publications with general circulation or that are offered for free and
electronic media, such as websites and television channels dedicated to Indian
news and programming. Our ability to secure advertising contracts and maintain
our advertising rates depends principally on the number of subscribers we have
on our circulation. If we are unable to compete with these alternatives or
experience a reduction in paid subscribers, we may experience a reduction in
advertising revenues. A slowdown in economic growth, in particular a slowdown in
the growth of companies that advertise products or services targeted at
Indian-Americans, may also reduce advertising revenues for our publications.
Further, as is the case with our contracts with online advertisers, our
contracts with advertising customers for our India Abroad business usually do
not commit them to continue to provide us with a specific volume of business and
can typically be terminated by them with or without cause, with little or no
advance notice and without penalty. Any of these factors could have a material
adverse effect on our business and our future financial performance.

                                      12
<PAGE>

The loss of one or more significant advertisers could adversely affect our
revenues.

         We derive a considerable portion of our revenues from certain key
advertisers. For the fiscal year ended March 31, 2006 our top ten advertisers in
India accounted for approximately 33% of our India Online revenues. For the same
period, for our U.S. publishing business, our top ten advertisers contributed
approximately 14% of total U.S. publishing revenues. Any failure to meet
advertiser expectations could result in cancellation or non-renewal of
contracts, which typically can be terminated by advertisers with or without
cause, with little or no advance notice and without penalty. The loss of, or a
significant reduction in the volume of business from, one or more of our large
advertisers could have a material adverse effect on our operating results and
financial condition.

Our operations could be disrupted by unexpected network interruptions caused by
system failures, natural disasters or unauthorized tampering of our systems.

         Our online businesses rely heavily on the Internet and, accordingly,
depend upon the continuous, reliable and secure operation of Internet servers,
related hardware and software and network infrastructure, such as telephone
lines leased from service providers. The continual accessibility of our websites
and the performance and reliability of our network infrastructure are critical
to our reputation, and our ability to attract and retain users, advertisers and
merchants. Any system failure or performance inadequacy that causes
interruptions in the availability of our services or increases the response time
of our services could reduce our appeal to advertisers and consumers. Factors
that could significantly disrupt our operations include:

     o    system failures and outages caused by fire, floods, earthquakes,
          tsunamis, power loss, telecommunications failures and similar
          events;

     o    software errors; computer viruses, break-ins and similar disruptions
          from unauthorized tampering with our computer systems;

     o    security breaches related to the storage and transmission of
          proprietary information, such as credit card numbers or other
          personal information; and

     o    terrorist acts.

         We have limited backup systems and redundancy. The failure of these
backup systems could lead to the disruption of our services and the loss of
important data. We have suffered temporary service outages in the past from time
to time that have resulted in a disruption of our services. Future disruptions
or the occurrence of any of the foregoing factors may result in users being
temporarily unable to access our content, community and e-commerce offerings.
Any sustained disruption will reduce the number of visitors to our website and
could have a material adverse impact on the transactions handled through our
website. Such disruptions could also reduce the number of advertisers on our
site and materially affect our operating results, which may lead to a decline in
the market price of our ADSs.

         We seek to protect our computer systems and network infrastructure from
physical break-ins, as well as security breaches and other disruptive problems.
We employ security systems, including firewalls and password encryption,
designed to minimize the risk of security breaches. There can be no assurance
that these security measures will be effective.

         If someone penetrates our network security or otherwise misappropriates
sensitive data about our users, we could be subject to liability. These
liabilities could include fraud claims and other claims for misuses of personal
information, such as unauthorized marketing purposes. These claims could result
in litigation and could have a material adverse effect on our business, results
of operations and financial condition.

         We do not carry material business interruption insurance to protect us
in the event of a catastrophe, even though such an event could lead to a
significant negative impact on our business. Any sustained disruption in
Internet access provided by third parties could also adversely affect our
business.

We may not benefit from our acquisitions and investments and our acquired
businesses could increase our net losses.

         We have made several strategic acquisitions and investments in order to
penetrate new markets, generate additional revenue streams and provide


                                      13
<PAGE>

value-added services to our users. We may, if opportunities arise, acquire or
invest in developing products, technologies or companies in the future. However,
there can be no assurance that our acquisition and investment strategy will be
successful or that we will realize the anticipated benefits from such
acquisitions or investments. Such transactions are accompanied by a number of
risks, including:

     o    the failure to identify operating weaknesses of the acquired
          business during the course of due diligence and negotiations of
          these transactions;

     o    the difficulty of assimilating the operations, third-party
          relationships and personnel of the acquired companies with our
          operations;

     o    the potential disruption to our ongoing business and distraction of
          management during the acquisition and integration process;

     o    the difficulty of incorporating acquired technology, software or
          content into our products, and unanticipated expenses related to
          such integration;

     o    the impairment of relationships with employees and customers as a
          result of any integration of new management personnel;

     o    the potential unknown liabilities associated with acquired
          businesses;

     o    failure to develop successfully new products or technologies;

     o    failure to popularize such products or technologies and/or derive
          expected revenues therefrom;

     o    unfavorable changes in business environment and government
          regulations; and

     o    unfavorable changes in accounting rules and guidelines relating to
          our acquisitions.

         Any or all of our future acquisitions may face similar risks and we may
not be successful in addressing these risks or any other problems encountered in
connection with such acquisitions.

Our business and growth will be impaired if we are unable to retain our existing
key personnel and hire additional skilled employees.

         We are dependent on certain key members of our management team. In
particular, our success depends upon the continued efforts of our Chairman and
Managing Director, Ajit Balakrishnan. We do not carry any key employee
insurance. All of our employees are located in India and the United States, and
each may voluntarily terminate his or her employment with us. Our planned
activities will require additional expertise in sales and marketing, technology
and other areas. The labor market for skilled employees is extremely
competitive, and the process of hiring employees with the necessary skills is
time consuming and requires the diversion of significant resources. We may not
be able to continue to retain existing personnel or identify, hire and
successfully integrate additional qualified personnel in the future. The loss of
the services of key personnel, especially the unexpected death or disability of
such personnel, or the inability to attract additional or replacement qualified
personnel, could impair the growth of our business.

We are highly dependent on our agreements with mobile service providers for
service delivery and fee collection.

         Our mobile services, including wireless short messaging services,
depend mainly on the cooperation of a large number of private and government
mobile phone operators who have the necessary licenses to provide mobile
services to consumers across various states/cities in India. We rely on all of
these mobile phone operators to provide network and gateway for our wireless
short messaging services. We also utilize their billing systems to collect
service fees from customers. Certain of these mobile phone operators also
provide services to their customers (such as the downloading of ringtones),
which compete with the mobile services we offer. This may make them less eager
to cooperate with us. If any or all of these mobile service providers encounter
technical problems, or if they refuse to cooperate with us or reduce fees
payable to us, our ability to provide mobile services may cease or be severely
disrupted, which may have a significant and adverse impact on our future
operating results.

                                      14
<PAGE>

We rely on increased sales of, and high renewal rates for, our subscription and
fee based products and services.

         A part of our India Online revenue growth for the fiscal year ended
March 31, 2006 was from our fee-based Internet services consisting primarily of
paid e-mail services, other subscription services and wireless short messaging
service in India. We are deriving an increased portion of our revenues from
these services. If not enough users adopt and use our fee-based Internet
services, our growth may be adversely affected.

Potential liability for information we publish may require us to defend against
legal claims, which may cause significant operational expenditures.

         We may be subject to claims for defamation, libel, copyright or
trademark infringement or other legal actions relating to the information we
publish. These types of claims have been brought, sometimes successfully,
against news and opinion publishing businesses in the past. Our insurance
coverage may not adequately protect us against these claims. Liability claims
could require us to spend significant time and money in litigation and to pay
significant damages. As a result, liability claims, whether or not successful,
could seriously damage our reputation and business.

We may be liable to third parties for information retrieved from our website.

         We could be exposed to liability for the selection of listings that may
be accessible through our website or through content and materials that we
develop or that our users may post in message boards, chat rooms, blogs or other
interactive services. For example, we are a party to a criminal writ petition
filed in the High Court of Mumbai, India, which alleged that we, through our
website "www.rediff.com", provided a search facility that enabled Internet users
to view pornographic, objectionable and obscene material. Further, in December
2004, a senior executive of eBay's Indian affiliate, Baazee.com, was arrested
and held in custody in India in connection with the alleged sale of a
pornographic video CD on Baazee.com's online auction website. We may also be
subject to claims for defamation, negligence, copyright or trademark
infringement, personal injury or other legal theories relating to the
information we post or products sold by third parties on our website. For
example, we have been named as a defendant in proceedings filed by Cartier
International B.V. in the High Court of Delhi, India, where Cartier
International B.V. seeks to obtain a permanent injunction against a vendor who
used the trademark "Cartier" for selling products on our Rediff Shopping
website. We could also become liable if confidential information is disclosed
inappropriately on or through our website. It is also possible that if any
information provided through our services contains errors, third parties could
make claims against us for losses incurred in reliance on the information.
Please see the section entitled "Business - Legal Proceedings" in this annual
report for more information on the litigation described above.

         We offer Internet-based e-mail services, which could expose us to
potential liabilities or claims resulting from:

     o    unsolicited e-mail;

     o    lost or misdirected e-mail;

     o    illegal or fraudulent use of e-mail;

     o    interruptions or delays in e-mail service; and

     o    loss or deletion of data stored in mailboxes.

         The laws in India and the United States relating to the liability of
companies which provide online services, like ours, for activities of their
users, are currently unsettled. Investigating and defending these claims is
expensive, even if they do not result in liability. We do not carry insurance to
protect us against all types of claims, and there is no precedent on such
liabilities under Indian law. Further, our business is based on establishing the
Rediff.com website as a trustworthy and dependable provider of content and
services. Allegations of impropriety, even if unfounded, could damage our
reputation, disrupt our ongoing business, distract our management and employees,
reduce our revenues and increase our expenses.

We may be liable to third parties for the products they purchase online.

                                      15
<PAGE>

         Consumers may sue us if any of the products or services that are
offered on our website's marketplace are defective, fail to perform properly or
injure the user. Although our agreements with manufacturers and distributors
whose products are displayed on our website's marketplace typically contain
provisions intended to limit our exposure to such liability claims, these
provisions may not be sufficient to limit all of our liability from such claims.
Product warranties are the responsibility of those who sell products on our
website's marketplace, although our reputation can be adversely affected if a
user is not satisfied with a purchase. Liability claims could require us to
spend a considerable amount of resources, time and money in litigation and to
pay significant damages. Allegations of impropriety, even if unfounded, or poor
service provided by manufacturers and distributors on our website's marketplace,
could damage our reputation, disrupt our ongoing business, distract our
management and employees, reduce our revenues and increase our expenses.

         In addition, the laws relating to the online sale of goods and services
is not fully developed. The various laws and regulations that cover online sales
of products and their interpretation involve a significant degree of
uncertainty. For example, we may have to register our business under various
laws relating to the sale of goods. Further, the application of tax law as it
relates to online transactions for goods and services is likewise uncertain. Our
business, financial condition and operating results may be materially affected
if we were required to obtain such registrations or comply with various
additional laws and regulations or pay additional taxes.

Privacy concerns may prevent us from selling demographically targeted
advertising in the future and make us less attractive to advertisers.

         We collect personal data from our user base in order to understand
better our users and their needs and to help our advertisers target specific
demographic groups. If privacy concerns or regulatory restrictions prevent us
from selling demographically targeted advertising, we may become less attractive
to advertisers. For example, as part of our future advertisement delivery
system, we may integrate user information such as advertisement response rate,
name, address, age or e-mail address, with third-party databases to generate
comprehensive demographic profiles for individual users. However, if we are
unable to construct demographic profiles for Internet users because users refuse
to give consent, we will be less attractive to advertisers and our business may
suffer.

Indian and/or overseas regulators and other telecommunications operators may
challenge our ability to offer a PC-to-PC voice facility as one of the features
of our Rediff BOL instant messenger service.

         Our Rediff BOL instant messenger service includes a feature that allows
users to talk to each other using their PCs at both ends. Although the voice
data of our users is transmitted through the Internet using
voice-over-internet-protocol technology and does not, at any point, pass through
regulated public switched telephone networks, it is possible that Indian and/or
overseas telecommunications regulators, operators or trade associations may seek
to impose restrictions on our ability to offer this facility. If any such
restrictions are imposed, we may be required to discontinue this feature of
Rediff BOL. Further, we may be required to devote time and management attention,
and incur expenses, addressing any such restrictions or responding to claims
from third parties.

We may not be able to manage our operations effectively if we grow, which could
harm our business.

         We anticipate expansion of our business in India as we address growth
in our customer base and market opportunities. In order to manage the expected
growth of our operations and personnel, we will be required to improve existing
and implement new operational and financial systems, procedures and controls,
and to expand, train and manage our employee base. Further, our management will
be required to maintain and expand our relationships with various other
partners, mobile phone operators, Internet and other online service providers
and other third parties necessary to our business. We cannot assure you that our
current and planned personnel, systems, procedures and controls will be adequate
to support our future operations or that such relationships will be maintained
or developed.

Currency exchange rate fluctuations may adversely impact our operating results
and financial condition.

         The exchange rate between the Rupee and the U.S. dollar has changed
substantially in the last two decades and could fluctuate substantially in the
future. On an annual average basis, the Rupee declined against the U.S. dollar
from 1980 to 2002. In May 2002, however, the Rupee began appreciating relative
to the U.S. dollar, such that as per the cable transfer buying Rupee/U.S. dollar
exchange rate quoted by the Federal Reserve Bank of New York, the Rupee gained
approximately 9.37% of its value relative to the U.S. dollar from a rate of


                                      16
<PAGE>

Rs.49.08 = US$1.00 in May 2002 to a rate of Rs. 44.48 = US$1.00 as of March 31,
2006. As of September 26, 2006, the cable transfer buying Rupee/U.S. dollar
exchange rate quoted by the Federal Reserve Bank of New York was Rs. 45.77 =
US$1.00, a 3.0% depreciation against the rate as of March 31, 2006 stated above.

         Because a substantial portion of our cash and cash equivalents is
currently held in Indian Rupees, devaluation or depreciation of the value of the
Indian Rupee will adversely affect the value of our cash reserves in foreign
currency terms. In addition, our market valuation could be materially adversely
affected by the devaluation of the Indian Rupee if U.S. investors analyze our
value and performance based on the U.S. dollar equivalent of our financial
condition and operating results. We expect that a substantial portion of our
revenues will continue to be generated in U.S. dollars from our U.S.-based
operations for the foreseeable future and a significant portion of our expenses,
including personnel costs, will continue to be denominated in Indian Rupees. As
such, any appreciation of the Rupee against the U.S. dollar will reduce the cost
advantage derived from our Rupee-denominated expenses and is likely to adversely
affect our financial condition and results of operations.

If we are unable to adapt to the rapid technological changes, our business could
suffer.

         Our success will depend, in part, on our ability to respond to
technological advances and practices on a cost-effective and timely basis. The
development and implementation of such technology entails significant technical
and business risks. There can be no assurance that we will successfully
implement new technologies. If we are unable, for technical, legal, financial or
other reasons, to adapt in a timely manner to changing market conditions or
customer requirements, our business and our future financial performance could
be materially adversely affected.

If we are unable to successfully seize upon new business opportunities, our
growth may be adversely affected.

         New technologies are giving rise to new business opportunities, such as
in gaming and paid search. We believe that much of our future growth will depend
on our ability to seize upon these opportunities and successfully launch new
products and services. If we are unable to do so, our future growth and
financial performance could be adversely affected.

A small group of our existing shareholders control our company and may have
interests which conflict with those of our other shareholders or owners of our
ADSs.

         As of March 31, 2006, our six largest shareholders and their affiliates
beneficially owned an aggregate of approximately 61% of our Equity Shares. As a
result, such shareholders acting collectively are able to exercise control over
most matters requiring approval by our shareholders, including the election of
directors and approval of significant corporate transactions. Under Indian law,
a simple majority is sufficient to control all shareholder action except for
those items which require approval by a special resolution. In case of a special
resolution, approval of three-fourths of the shareholders present and voting is
required. Examples of actions that require a special resolution include:

     o    amending our Articles of Association;

     o    issuing additional shares of capital stock, except for pro rata
          issuance to existing shareholders;

     o    commencing any new line of business; and

     o    commencing a liquidation.

         Further, Ajit Balakrishnan, Diwan Arun Nanda and Rediffusion Holdings
Private Limited (formerly Rediffusion Advertising Private Limited), are entitled
to appoint and have appointed Mr. Balakrishnan as a Director on Board and as our
Chairman so long as they hold not less than 10.0% of our issued, subscribed and
paid-up capital. Mr. Balakrishnan currently serves an indefinite term and is not
required to retire by rotation.

         The interests of our controlling shareholders may differ from our other
shareholders or owners of our ADSs and could result in a delay or prevention of
a change in control of our Company even if a transaction of that sort would be
beneficial to our other shareholders, including the owners of our ADSs, or in
the best interest of our Company.

                                      17
<PAGE>

         For additional information regarding our principal shareholders, please
see "Principal Shareholders" in this annual report.

The laws of India do not protect intellectual property rights to the same extent
as those of the United States, and we may be unsuccessful in protecting our
intellectual property rights, which could lead to a reduction in our revenues
and an increase in our expenses.

         Our intellectual property rights are important to our business. We rely
on a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our intellectual property.

         Our efforts to protect our intellectual property may not be adequate.
Our competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
India do not protect proprietary rights to the same extent as the laws of the
United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. The
misappropriation or duplication of our intellectual property could disrupt our
ongoing business, distract our management and employees, reduce our revenues and
increase our expenses. We may need to litigate to enforce our intellectual
property rights or to determine the validity and scope of the proprietary rights
of others. Any such litigation could be time-consuming and costly and may not
ultimately prove successful.

         We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our website
or other product or service offerings overlap with competitive offerings.
Defending against these claims, even if not meritorious, could be expensive and
divert our attention and resources from operating our business. If we become
liable to third parties for infringing their intellectual property rights, we
could be required to pay substantial damages awards and forced to develop
non-infringing technology, obtain a license or cease selling the applications
that contain the infringing technology. We may be unable to develop
non-infringing technology or obtain a license on commercially reasonable terms,
or at all.

         For additional information regarding our intellectual property rights,
please see "Business - Intellectual Property" in this annual report.

The limited installed personal computer base in India limits our pool of
potential customers and restricts the growth of our business.

         The market penetration of, or access to, personal computers, or PCs,
and, consequently, the Internet in India is far lower than in the United States.
According to the Indian Manufacturers' Association of Information Technology
("MAIT"), personal computer sales for the fiscal year ending March 31, 2006 were
estimated at 5.04 million units. Alternate methods of obtaining access to the
Internet, such as through cable television modems or set-top boxes for
televisions, although available, are available in a limited manner in India. We
cannot assure you that the market penetration of personal computers in India
will increase rapidly or at all, or that alternate means of accessing the
Internet will develop and become widely available in India. If these events do
not occur we will not be able to expand our customer base, which will make it
difficult for us to execute our business strategy.

The success of technological infrastructure and consumer base for our products
and services depends on the acceptance of the Internet in India, which may be
slowed by cost and affordability issues, technical obstacles and unfavorable
Government policies.

         The growth of our India Online business is highly dependent on the
growth in the number of PCs in use, and the penetration rates of broadband and
Internet use and mobile phones.

         The growth of the telecom and mobile industry in India will be a
significant factor in determining whether we can grow our business. As with many
developing nations, the fixed line telecommunications infrastructure in India is
not fully developed. Although this industry has been opened for private sector
participation, service levels remains inferior to service levels in most
developed countries. Further, telephone penetration rates, measured by the
number of telephone lines per one thousand persons in India, are low when
compared to most developed countries. In addition, limitations in network
architecture in India sometimes limit Internet connection speeds to 28 Kbps or
less, which are less than the 56 Kbps connection speeds on conventional dial-up
telephone lines, and significantly less than the up to 1.5 Mbps connection speed
on direct satellite link, digital subscriber lines and cable modems in the
United States. These speed and cost constraints may severely limit the quality


                                      18
<PAGE>

and desirability of using the Internet in India, which consequently may limit
our ability to expand our pool of customers and reduce our desirability to
online advertisers.

         Further, our growth is limited by the high cost of obtaining hardware,
software and communications links necessary to connect to the Internet in India.
If the costs required to access the Internet do not significantly decrease, much
of India's population will not be able to afford to use our services. The
failure of a significant number of additional Indians to obtain affordable
access to the Internet would make it difficult to execute our business strategy.

         In other developing Asian markets such as South Korea and Malaysia, an
increase in broadband penetration rates led to rapid growth in the number of
online subscribers. Currently, the broadband penetration rates in India is very
low compared to other developed countries. According to the report of the
Telecom Regulatory Authority of India ("TRAI") dated March 25, 2004, India had
1.0 broadband connection per 5,000 persons, while South Korea and the People's
Republic of China had 57 and 1.2 broadband connections per 100 persons,
respectively. If the broadband and telecom industry in India fails to register
significant growth as has been experienced by other developed countries, our
growth may also be affected.

The success of our e-commerce platform depends on its acceptance and growth in
India, which is uncertain.

         Many of our existing and proposed products and services are designed to
facilitate e-commerce in India, although there is very little e-commerce
currently being conducted in India. Demand and market acceptance for these
products and services by consumers is highly uncertain. Critical issues
concerning the commercial use of the Internet, such as legal recognition of
electronic records, validity of contracts entered into through the Internet and
the validity of digital signatures, are governed in India by the Information
Technology Act, 2000 (the "IT Act"). In addition, many Indian businesses have
deferred deploying e-commerce initiatives for a number of reasons, including the
existence or perception of, among other things:

     o    inconsistent quality of service;

     o    lack of legal infrastructure relating to e-commerce in India;

     o    lack of security of commercial data such as credit card numbers;

     o    low number of Internet users in India; and

     o    low levels of credit card penetration in India.

         If usage of the Internet, credit cards and e-commerce in India does not
substantially increase and the legal infrastructure and network infrastructure
in India are not further developed, we are not likely to achieve significant
growth of our e-commerce products and services. Also, a slowdown in economic
growth in India may result in an overall reduction in consumer and business
spending, which will adversely affect our e-commerce platform revenues.

We may need to improve our internal controls over financial reporting and our
independent auditors may not be able to attest to their effectiveness, which
could adversely affect our business operations, reputation and profitability.

         We are currently evaluating our internal controls over financial
reporting in order to allow our management to report on, and its independent
auditors to attest to, the internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires
that we document our internal control systems and processes over financial
reporting, evaluate the adequacy of the design of these respective controls and
test that these controls are operating effectively.

         We are still in the process of evaluating the adequacy of design and
testing the effectiveness of these various internal control activities over
financial reporting. In the course of such evaluation, we may identify
conditions that may result in significant deficiencies or material weaknesses in
the future, which could impact our ability to comply with the requirements of
Section 404 in a timely manner. If we are not able to implement the requirements
of Section 404 in a timely manner and with adequate compliance, our independent
auditors may not be able to attest to the adequacy and effectiveness of the
internal controls over our financial reporting. In such an instance, we may be
subject to sanction or investigation by regulatory authorities, such as the SEC.


                                      19
<PAGE>

As a result, there could be a negative reaction in the financial markets due to
a loss of confidence in the reliability of our financial statements. In
addition, we may be required to incur costs in improving our internal control
systems. Any such action could negatively affect our results of operations and
have an adverse effect on our business operations, reputation and market price
of our ADSs.

Risks Related to Investments in Indian Companies

         We are incorporated in India, and a large part of our assets, business
operations and employees are located in India. Consequently, our financial
performance and the market price of our ADSs will be affected by social and
economic developments in India and the policies of the Government of India,
including taxation and foreign investment policies, as well as changes in
exchange rates, interest rates and controls.

Terrorist attacks and other acts of violence or war involving India, the United
States, and other countries could adversely affect the financial markets, result
in a loss of business confidence and adversely affect our business, results of
operations and financial condition.

         Terrorist attacks, such as the ones that occurred in New York and
Washington, D.C., on September 11, 2001, New Delhi on December 13, 2001, the
bomb blasts in Mumbai on August 25, 2003, the October 2004 bomb blasts in
Northeast India and the Mumbai train bombings on July 11, 2006, as well as other
acts of violence or war, including those involving India, the United States or
other countries, may adversely affect Indian and worldwide financial markets.
These acts may also result in a loss of business confidence and have other
consequences that could adversely affect our business, results of operations and
financial condition. Travel restrictions as a result of such attacks may have an
adverse impact on our ability to operate effectively. Increased volatility in
the financial markets can have an adverse impact on the economies of India and
other countries, including economic recession.

If communal disturbances or riots erupt in India, or if regional hostilities
increase, this would adversely affect the Indian economy, the health of which
our business depends upon.

         Some parts of India have experienced communal disturbances, terrorist
attacks and riots during recent years. If such events recur, the market for our
services may be adversely affected, resulting in a decline in our income.

         The Asian region has from time to time experienced instances of civil
unrest and hostilities among neighboring countries, including those between
India and Pakistan. Since May 1999, military confrontations between India and
Pakistan have occurred in Kashmir. The hostilities between India and Pakistan
are particularly threatening because both India and Pakistan are nuclear powers.
Hostilities and tensions may occur in the future and on a wider scale. Also,
since 2003, there have been military hostilities and continuing civil unrest and
instability in Iraq and Afghanistan. Events of this nature in the future, as
well as social and civil unrest within other countries in Asia, could influence
the Indian economy and could have a material adverse effect on the market for
securities of Indian companies, including our ADSs, and on the market for our
services.

Political instability related to the current multi-party coalition government
could halt or delay the liberalization of the Indian economy and adversely
affect economic conditions in India generally and our business in particular.

         The Government has traditionally exercised and continues to exercise
significant influence over many aspects of the economy. Our business, and the
market price and liquidity of our ADSs, may be affected by interest rates,
changes in Government policy, taxation, social and civil unrest and other
political, economic or other developments in or affecting India.

         Since 1991, successive Indian governments have pursued policies of
economic liberalization, including significantly relaxing restrictions on the
private sector. We cannot assure you that these liberalization policies will
continue in the future. The 2004 general elections in India resulted in the
election of a multi-party coalition government that relies on the support of
political parties that have traditionally been opposed to the economic
liberalization policies that have been pursued by previous governments. The
rate of economic liberalization could change, and specific laws and policies
affecting technology companies, foreign investment, currency exchange rates
and other matters affecting investment in our securities could change as well.
A significant change in India's economic liberalization and deregulation
policies could adversely affect business and economic conditions in India
generally, including our business.

                                      20
<PAGE>

Indian law limits our ability to raise capital and the ability of others to
acquire us, which could prevent us from operating our business or entering into
a transaction that is in the best interests of our shareholders.

         Indian law constrains our ability to raise capital through the issuance
of equity or convertible debt securities. Foreign investment in an Indian
company may require approval from relevant government authorities in India
including the Reserve Bank of India. The Government of India has classified
existing businesses into various categories for automatic approval of foreign
direct investment up to certain prescribed percentages. Under the current
guidelines, the Government of India provides for approval under the automatic
route for foreign direct investment proposals relating to the information
technology sector.

         We cannot assure you that equity or other forms of financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of anticipated or unanticipated opportunities,
develop or enhance our infrastructure and services, or otherwise respond to
competitive pressures would be significantly limited. Our business, operating
results and financial condition could be materially adversely affected by any
such limitation.

Our ability to acquire companies organized outside of India may depend on the
approval of the Government of India. Our failure to obtain approval from the
Government of India for acquisitions of companies organized outside India may
restrict our growth, which could negatively affect our revenues.

         As part of our business strategy, we may plan to acquire complementary
businesses, including businesses based outside of India. For the acquisition of
a business based outside India we may, under certain circumstances, be required
to obtain approval of the Reserve Bank of India and/or the Government of India.
Under guidelines issued by the Government of India, an acquisition of a company
organized outside India are permitted without prior government approval if the
transaction value does not exceed 100% of the Indian party's net worth. If the
acquisition is undertaken through the issuance by the Indian company of stock in
the form of listed ADRs in exchange for the stock of the non-Indian company, the
cap on the transaction's value is the greater of 100% of the Indian company's
net worth and 10 times the Indian company's export earnings in the previous
fiscal year.

         We cannot assure you that we will be able to obtain any required
approval from the Reserve Bank of India and/or the Government of India. Our
failure to obtain approval from the Reserve Bank of India and/or the Government
of India for acquisitions of companies organized outside India may restrict our
growth, which could negatively impact our revenues.

Statistical and third-party data in this document and documents incorporated by
reference herein may be incomplete or unreliable.

         We have not independently verified data from industry publications and
other third-party sources and therefore cannot assure you that they are complete
or reliable. Such data may also be produced on different bases from those used
in Western countries. Therefore, discussions of matters relating to India, its
economy or our industry are subject to the caveat that the statistical and other
data upon which such discussions are based may be incomplete or unreliable.

Risks Related to the ADSs and Our Trading Market

An active or liquid market for our ADSs is not assured.

         Active, liquid trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders for investors.
Liquidity of a securities market is often a function of the volume of the shares
that are publicly held by unrelated parties. Although holders of our ADSs are
entitled to withdraw the Equity Shares underlying the ADSs from our depositary
facility at any time, subject to certain legal restrictions, there is no public
market for our Equity Shares in India or elsewhere.

         Under current Indian law, Equity Shares may only be deposited into our
depositary facility in exchange for ADSs and, under certain circumstances, the
number of ADSs that can be outstanding at any time is limited as follows: after
any offering of ADSs, Equity Shares can be deposited for issuance of ADSs only
to the extent that (a) holders have surrendered ADSs and withdrawn Equity Shares
from the ADS facility and (b) such holders sold such Equity Shares through
stockbrokers registered with the Securities and Exchange Board of India ("SEBI")
in a domestic Indian stock market. As our Equity Shares are not listed on any
Indian stock exchange, if you elect to surrender your ADSs and receive Equity


                                      21
<PAGE>

Shares, you would be unable to redeposit outstanding Equity Shares with our
Depositary and receive ADSs. Therefore, unless the law is changed, the number of
outstanding ADSs and the trading volumes for all ADSs will decrease to the
extent that Equity Shares are withdrawn from our depositary facility and not
deposited for the re-issuance of ADSs, which may adversely affect the market
price and the liquidity of the market for the ADSs.

Currently there is no public trading market for our Equity Shares in India or
elsewhere which, together with existing Indian laws that restrict the conversion
of outstanding equity shares into ADSs, reduce your ability to sell our Equity
Shares represented by ADSs.

         Currently there is no public trading market for our Equity Shares in
India or elsewhere, and we cannot assure you that we will take steps to develop
one or that we will be able to meet applicable listing guidelines or regulations
to list our Equity Shares on a stock exchange in India or elsewhere. Our Equity
Shares are currently only traded on the NASDAQ Capital Market (formerly the
NASDAQ Small Cap Market) in the form of ADSs. Under current Indian laws and
regulations, outstanding Equity Shares not listed in India may not be deposited
into our depositary facility except in certain limited circumstances or with
certain regulatory approvals. Thus, if you elect to surrender your ADSs and
receive Equity Shares, you will not be able to trade those Equity Shares on any
securities market. Further, you will be prohibited from re-depositing such
unlisted outstanding Equity Shares with our Depositary.

         Under current Indian regulations and practice, approval of the Reserve
Bank of India is not required for the sale of equity shares underlying ADSs by a
non-resident of India to a resident of India or for a renunciation in favor of a
resident of India of rights to subscribe to equity shares pursuant to a rights
offering, unless the sale breaches the pricing guidelines laid down for this
purpose by the RBI, which specify that where the equity shares of an Indian
company are not listed on a stock exchange:

     o    if the consideration payable for the transfer does not exceed Rs.
          2.0 million, at a price mutually agreed to between the seller and
          the buyer, based on any recognized equity share valuation
          methodology, on submission of a certificate from the statutory
          auditors of the Indian company whose equity shares are proposed to
          be transferred, regarding the valuation of such equity shares; and

     o    if the consideration payable for the transfer exceeds Rs. 2.0
          million, at a price which is lower of the two independent valuations
          of the equity shares being transferred prepared by the statutory
          auditors of the company and by a Chartered Accountant or a Merchant
          Banker registered with Securities and Exchange Board of India.

Our management has broad discretion in using the proceeds from our securities
offerings and cash from operations and therefore investors will be relying on
the judgment of our management to invest those funds effectively.

         Our management has broad discretion with respect to the expenditure of
the net proceeds from our securities offerings and cash from our operations. As
of March 31, 2006, we held approximately US$53 million as cash and cash
equivalents and short term deposits with banks on which we are earning interest.
We intend to use these funds primarily to develop additional platforms for the
growth of our online business, product development, and general corporate
purposes, including capital expenditures and strategic investments, partnerships
and acquisitions. However, there is a possibility that we may be unable to make
successful strategic investments, partnerships or acquisitions in the near
future. Further, there could be a risk that our management may use these funds
in an inefficient or ineffective manner.

Our ADS market price is highly volatile and could drop unexpectedly in the
future.

         The stock markets in the United States have from time to time
experienced significant price and volume fluctuations that have affected the
market prices for the securities of technology companies, particularly Internet
companies. Volatility in the price of our ADSs may be caused by factors outside
of our control and may be unrelated or disproportionate to our operating
results. In the past, following periods of volatility in the market price of a
public company's securities, securities class action litigation has often been
instituted against that company. Securities class action litigation has been
instituted against us in the United States. See "Risk Factors - Pending and
potential litigation against us could have a material adverse effect on our
business and operating results and lower the market price of our ADSs". Such
litigation brought against us, even if unsuccessful, could damage our reputation
and result in substantial costs and a diversion of our management's attention
and resources.

                                      22
<PAGE>

Owners of our ADSs may be restricted in their ability to exercise preemptive
rights and thereby may suffer future dilution of their ownership position.

         Under the Indian Companies Act, 1956, as amended (the "Companies Act"),
a company incorporated in India must offer its holders of equity shares
preemptive rights to subscribe and pay for a proportionate number of shares to
maintain their existing ownership percentages prior to the issuance of any new
equity shares, unless the preemptive rights have been waived by adopting a
special resolution by holders of three-fourths of the company's equity shares
which are voted on the resolution. U.S. owners of ADSs may not be able to
exercise preemptive rights for Equity Shares underlying ADSs unless a
registration statement under the Securities Act is effective with respect to the
rights or an exemption from the registration requirements of the Securities Act
is available. Our decision to file a registration statement will depend on the
costs and potential liabilities associated with any given registration statement
as well as the perceived benefits of enabling the owners of our ADSs to exercise
their preemptive rights and any other factors that we deem appropriate to
consider at the time the decision must be made. We may elect not to file a
registration statement related to preemptive rights otherwise available by law
to our shareholders. In the case of such future issuance, the new securities may
be issued to our Depositary, which, if there is a trading market for such new
securities which may not be the case, may sell the securities for the benefit of
the owners of our ADSs. The value, if any, our Depositary would receive upon the
sale of such securities cannot be predicted. To the extent that owners of ADSs
are unable to exercise preemptive rights granted in respect of the Equity Shares
represented by their ADSs, their proportional interests in our company would be
reduced.

Owners of our ADSs may be restricted in their ability to exercise voting rights
because of the practical and legal limitations associated with instructing our
Depositary to vote on your behalf.

         Holders of ADSs may exercise voting rights only through a depositary,
unlike an owner of Equity Shares, who can exercise voting rights directly. An
owner of ADSs generally will have the right under the deposit agreement to
instruct our Depositary to exercise the voting rights for the Equity Shares
represented by the ADSs. Owners of ADSs have no rights pursuant to the Companies
Act, under which we are incorporated, and are limited to those rights granted to
them pursuant to the deposit agreement.

         If our Depositary timely receives voting instructions from an owner of
ADSs, it will endeavor to vote the securities represented by those ADSs in
accordance with such voting instructions. In the event that voting takes place
by a show of hands, our Depositary will cause the custodian to vote all
deposited securities in accordance with the instructions received from owners of
a majority of the ADSs for which our Depositary receives voting instructions.
However, the ability of our Depositary to carry out voting instructions may be
limited by practical and legal limitations and the terms of the securities on
deposit. We cannot assure that holders of ADSs will receive voting materials in
time to enable them to return voting instructions to our Depositary in a timely
manner.

We do not plan to pay dividends in the foreseeable future.

         We do not anticipate paying cash dividends to the owners of our Equity
Shares or ADSs in the foreseeable future. Accordingly, investors must rely on
sales of their Equity Shares or ADSs, which may increase or decrease in value,
as the only way to realize cash from their investment. Investors seeking cash
dividends should not purchase our ADSs.

We may be classified as a passive foreign investment company for United States
federal income tax purposes, which could subject United States investors in the
ADSs or Equity Shares to adverse tax consequences.

         It is uncertain whether we will be classified as a passive foreign
investment company (a "PFIC") for United States federal income tax purposes
for the current or any future taxable year. PFIC status is a factual
determination made annually on the basis of the composition of our income and
the value of our active versus passive assets. The valuation of our goodwill
and other unbooked intangibles is based on our market capitalization, which
may be less than anticipated or may subsequently decline. In addition, the
composition of our active versus passive assets will be affected by the extent
to which we spend the liquid assets we presently hold for business development
purposes. If we were to be or become classified as a PFIC, United States
investors in our ADSs or our Equity Shares may incur significantly increased
United States income tax on gain recognized on the sale or other disposition
of our ADSs or our Equity Shares and on the receipt of distributions on our
ADSs or Equity Shares to the extent such gain or distribution is treated as an
"excess distribution" under the United States federal income tax rules. Please
see the section in this annual report entitled "Taxation - United States
Federal Income Tax Considerations - Passive Foreign Investment Company Rules".

                                      23
<PAGE>

Sales of substantial amounts of securities in the public market could depress
the price of our ADSs and could impair our ability to raise capital through the
sale of additional Equity Shares.

         The market price of our ADSs could decline as a result of sales of a
large number of Equity Shares represented by ADSs on a U.S. stock exchange or
elsewhere, or the perception that such sales could occur. Such sales also might
make it more difficult for us to sell Equity Shares in the future at a time and
at a price that we deem appropriate. As of March 31, 2006, we had an aggregate
of 14,539,600 Equity Shares outstanding. Of the outstanding Equity Shares,
8,778,800 ADSs, representing 4,389,400 Equity Shares, are freely tradable. Our
remaining Equity Shares may be sold in the United States pursuant to a
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act. Further, certain holders of at
least 30% of our Equity Shares can require us, subject to limitations, to effect
a registration of such Equity Shares and/or to list the Equity Shares either on
the NASDAQ Global Market (formerly the NASDAQ National Market), the National
Stock Exchange of India or the Bombay Stock Exchange Limited (formerly The Stock
Exchange, Mumbai).

We may be required to list our Equity Shares on an Indian stock exchange. If we
were to list our Equity Shares on an Indian stock exchange, conditions in the
Indian securities market may affect the price or liquidity of our Equity Shares.

         On June 28, 2006, the Ministry of Finance of the Republic of India
issued amendments to the "Issue Of Foreign Currency Convertible Bonds And
Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993" (the
"Scheme"). The amendments included a statement that Indian companies that have
issued depositary receipts and/or foreign currency convertible bonds prior to
August 31, 2005 will be permitted to comply with listing conditions on the
Indian stock exchanges within three years of having started to make profits. At
present, the manner in which the amendments to the Scheme prescribed by the
Ministry of Finance will be interpreted and implemented, and how they would
apply to us, is still uncertain. However, because we generated US$1.2 million of
net income in fiscal 2006, we may eventually be required to list our Equity
Shares on an Indian stock exchange.

         The Indian securities markets are smaller than securities markets in
more developed economies and are more volatile than the securities markets in
other countries. Indian stock exchanges have in the past experienced substantial
fluctuations in the prices of listed securities. During the first and second
quarters of 2006, the two main Indian stock exchanges, the National Stock
Exchange of India Limited (the "NSE") and the Bombay Stock Exchange Limited (the
"BSE"), suffered from a high level of intra-day volatility and on May 22, 2006,
the BSE suffered its largest ever intraday fall of 1,111 points.

         Indian stock exchanges have also experienced problems that have
affected the market price and liquidity of the securities of Indian companies.
These problems have included temporary exchange closures, broker defaults,
settlement delays and strikes by brokers. In addition, the governing bodies of
the Indian stock exchanges have from time to time restricted securities from
trading, limited price movements and restricted margin requirements. Further,
from time to time, disputes have occurred between listed companies and the
Indian stock exchanges and other regulatory bodies that, in some cases, have had
a negative effect on market sentiment. If we were to list our Equity Shares on
an Indian Stock Exchange and similar problems occur in the future, they could
harm the market price and liquidity of the Equity Shares and this could have an
adverse effect on the price of our ADSs.

It may be difficult for you to enforce any judgment obtained in the United
States against us or our affiliates.

         We are incorporated under the laws of the Republic of India and many of
our directors and executive officers reside outside of the United States. In
addition, a large part of our assets and the assets of many of these persons are
located outside of the United States. As a result, you may be unable to:

     o    effect service of process upon us outside India or these persons
          outside the jurisdiction of their residence; or

     o    enforce against us in courts outside of India or these persons
          outside the jurisdiction of their residence, judgments obtained in
          U.S. courts, including judgments predicated upon the federal
          securities laws of the United States.

                                      24
<PAGE>

         We have been advised by our Indian counsel that the United States and
India do not currently have a treaty providing for reciprocal recognition and
enforcement of judgments of courts in the United States in civil and commercial
matters. Therefore, a final judgment for the payment of money rendered by any
federal or state court in the United States on civil liability, whether or not
predicated solely upon the federal securities laws of the United States, would
not be enforceable in India. However, the party in whose favor such final
judgment is rendered may bring a new suit in a competent court in India based on
a final judgment which has been obtained in the United States. A judgment of the
courts in the United States shall be conclusive as to any matter directly
adjudicated between the parties to the suit except if Indian courts were of the
opinion that such judgment:

     o    was not rendered by a court of competent jurisdiction;

     o    was not rendered on the merits of the case;

     o    appears on the face of the proceedings to be founded on an incorrect
          view of international law or a refusal to recognize the law of India
          in cases in which such law is applicable;

     o    was obtained in proceedings which are opposed to "natural justice";
          or

     o    sustains a claim founded on a breach of any law in force in India.

                                      25
<PAGE>

                                    BUSINESS

Overview

         Our legal name is Rediff.com India Limited. We were incorporated on
January 9, 1996 as Rediff Communication Private Limited under the Indian
Companies Act. We converted to a public company on May 29, 1998. On February 15,
2000 we changed our name to Rediff.com India Limited. Our principal office is
located at Mahalaxmi Engineering Estate, 1st Floor, L.J. First Cross Road, Mahim
(West), Mumbai 400 016, India, and our telephone number is +91-22-2444-9144. Our
Internet address is www.rediff.com.

         We are a leading Internet destination in India, focusing on providing
world-class online consumer offerings in India and to the global Indian
community. Our websites in India and the U.S. consist of communication services,
such as e-mail and instant messaging, news and information channels, community
features, sophisticated search engines, and mobile and online marketplace
services.

         We also publish two weekly newspapers aimed at the Indian-American
community based in the United States and Canada: "India Abroad" and "India in
New York".

         During the fiscal year ended March 31, 2003, our management
reclassified our business segments and reviewed our performance on a new basis.
In April of 2004, we sold our phone card business and in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the impairment or disposal of long-lived assets", the operations of this
business have been classified under discontinued operations. Currently we
operate two business segments, the India Online business and the U.S. Publishing
business.

         In June 2000, we issued 5.3 million ADSs, representing 2.65 million
Equity Shares, at a price of US$12.00 per ADS, raising net proceeds of US$57.3
million, after underwriting discounts and expenses, and we listed our ADSs on
the NASDAQ. In November 2005, we issued 3.0 million ADSs, representing 1.5
million Equity Shares, at a price of US$15.86 per ADS, raising net proceeds of
US$44.1 million, after underwriting discounts and other expenses, and these ADSs
were also listed on the NASDAQ. Our ADSs are currently listed and trade on the
NASDAQ Capital Market (formerly the NASDAQ Small Cap Market). The net proceeds
of our ADS offerings have been used by us, and in future, are intended to be
used by us, to develop content for our Internet website, to advertise and
promote our brand, and for general corporate purposes, including capital
expenditures, strategic investments, partnerships and acquisitions. We have also
received approval to have our ADSs listed and traded on the NASDAQ Global Market
(formerly the NASDAQ National Market), and we expect trading on the NASDAQ
Global Market to begin before the end of calendar 2006.

         During the years 2001 and 2002, while we waited for the Indian Internet
user base to grow, we made a number of acquisitions in the United States to
strengthen our offerings to people of Indian origin living in North America.
First, we acquired "thinkindia.com", an Internet website servicing people of
Indian origin in the United States, for $3.4 million. Next, in March 2001, we
acquired ValuCom, a provider of online phone cards, for US$3.7 million plus
deferred consideration payable over a period of 2 years. Subsequently, in July
2002, we concluded the acquisition of ValuCom by paying the deferred
consideration of approximately US$3.1 million. In April 2001, we acquired India
Abroad and India in New York, two weekly community newspapers based in New York,
for approximately US$11.4 million.

         We periodically evaluate the fair value of goodwill arising from these
acquisitions by applying the guidelines of SFAS No. 142, "Goodwill and Other
Intangible Assets", and wrote off US$3.3 million, US$8.3 million and US$1.7
million for the fiscal years ended March 31, 2002, 2003 and 2004, respectively.
In accordance with SFAS No. 144, "Accounting for the impairment or disposal of
long-lived assets", the goodwill write-off relating to our ValuCom acquisition
has been disclosed as results from discontinued operations. The residual value
of goodwill as of March 31, 2004, March 31, 2005 and March 31, 2006 relates to
our India Abroad business and amounts to US$7.3 million.

         During the fiscal year ended March 31, 2004, we evaluated the prospects
of the ValuCom business and decided that, because of a number of factors,
including the downward trend of telecom rates for US-India telephone calls, the
emergence of low cost competitors and our lack of sufficient scale, it was more
prudent to exit the ValuCom business. In April 2004, we exited this business.

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<PAGE>

Our Markets

         We believe that the growth of our revenues and profits from our India
Online business is dependent on the growth of the Indian Internet and mobile
phone user bases, the evolution of adequate payment mechanisms and our ability
to capture a sizeable share of the increase in revenues resulting from such
growth.

         The growth of the user bases for internet and mobile phones, in turn,
is dependant on government policies which facilitate a competitive and
financially healthy telecom industry. During the last few years, the
Government of India has taken a number of steps in this direction, opening
most sectors of the telecom industry to private sector and foreign capital,
establishing independent regulatory authorities and reducing taxes on personal
computers and mobile phones. We believe that these government initiatives have
begun to show results as a combination of lower prices for both personal
computers ("PCs") and Internet access (including broadband access) have led to
growth in PC ownership and a corresponding growth in the number of Internet
subscribers. This growth is evidenced by the following:

     o    According to statistics released by the MAIT, PC penetration in
          India has increased from six PCs per 1,000 people as of March 31,
          2001 to 18 PCs per 1,000 as of March 31, 2006; and

     o    According to the TRAI, India's mobile subscriber base grew by 13
          million subscribers during the first quarter of fiscal 2007, a 150%
          increase over the same period during the prior fiscal year, with the
          mobile subscriber base in India totaling 106 million as of June 30,
          2006.

         The growth of our U.S. businesses is dependent on our ability to launch
new services that appeal to the approximately 2 million Asian Indians living in
the United States as well as increase in advertising revenues from our Rediff
India Abroad website and from our weekly newspapers, India Abroad and India in
New York.

Our Opportunity

         Both Internet and mobile phone usage are at an early stage in India
and, after a period of slow growth from 2000 to 2003, are starting to
accelerate. We believe our opportunities are driven by the following factors:

     o    We believe that we were an early mover in the Indian market; our
          brand is recognized and valued by Indian Internet users;

     o    We offer services based on the latest technology; we believe that
          our platform is convenient to use and provides locally relevant
          services that have a high utility value for consumers;

     o    We are one of the few Internet companies in India offering complete
          website services, such as e-mail, search, chat, instant messaging,
          blogs, news and online shopping;

     o    According to the TRAI report dated March 25, 2004, India had 1.0
          broadband connection per 5,000 persons, while South Korea and the
          People's Republic of China had 57 and 1.2 broadband connections per
          100 persons, respectively. As penetration and usage of the Internet
          grows in India, we believe advertisers will increasingly use this
          medium as an additional advertising channel. We believe that as
          Internet advertising grows in popularity in India, we are well
          positioned, as one of India's leading websites, to benefit from this
          growth;

     o    Anticipated improvement in online payment infrastructure,
          distribution and fulfillment facilities, an increase in credit and
          debit card penetration rates and the development of alternative
          payment mechanisms for online purchases, such as cash on deliveries
          is expected to fuel the growth of e-commerce in India; and

     o    In India, we expect mobile value-added services in the form of
          ringtones, games and chat services to increase in popularity as the
          mobile subscriber base increases.

         We believe that as a website with a large number of users, we are well
positioned to benefit from the revenues generated from these services.

                                      27
<PAGE>

Our Strategy

         We believe our success is due to our focus on providing a full range of
culturally relevant online products and services to Indians living in India and
other parts of the world. We intend to continue to focus on providing the
following services:

     o    News and information services, including breaking news as well as
          message boards for users to post their opinions, a facility for
          users to personalize news to those that suit their interests and
          periodic newsletters they can receive in their e-mail boxes. Our
          news and information channels cover politics, business and
          entertainment news.

     o    Communication services, including e-mail, chat and instant
          messaging. E-mail services are provided in a variety of Indian
          languages.

     o    Mobile services, including facilities for downloading ringtones,
          mobile games, wallpapers, chat and email. We provide these services
          for both 2G and 2.5G mobile services.

     o    Consumer and business services, including webhosting, domain name
          registration, matchmaking and astrology. Some of our consumer
          services are offered on a subscription basis.

     o    Search services, including facilities to locate local information on
          domestic airfares, job listings, people and businesses.

     o    Online shopping services, including a platform for merchants in
          India to create online shops, package tracking facilities, and a
          facility for consumers to rate merchants. Our online shopping
          service also allows Indians living in India and worldwide to send
          gift products to their friends and relatives living in India. We
          offer a wide range of payment options to our consumers.

     o    Online advertising services on our Rediff.com website, revenues from
          which currently account for a significant portion of our India
          Online business. These include banners, email and text link
          campaigns and sponsorship of editorial events. Our target client
          base for advertising and sponsorships include global companies doing
          business in India as well as domestic corporations.

     o    Our "Pay4Clicks" platform, which is an automated platform that
          allows merchants to advertise on the Rediff.com website, with a fee
          being charged to the merchant each time a user clicks on its
          advertisement. This model has shown growth in some international
          markets.

     o    In the United States, publication of "India Abroad" and "India in
          New York", as well as providing online services to the Asian Indian
          community.

Our Product and Service Offerings

India Online Business

         Our Rediff.com India website consists of information, communication and
content services, free and paid community features and products, including
e-commerce and mobile services. With 43.05 million online registered users
worldwide as at March 31, 2006, we believe Rediff.com is one of the most
recognized online brands in India and among the Indian community worldwide.

         For the fiscal year ended March 31, 2006, the India Online business
segment generated US$ 12.2 million of revenues, accounting for 65.1% of our
total revenues from continuing operations.

Information and Content
-----------------------

         We deliver information and content to our users in an easy to use
interface. The information and content channels currently available to our users
include news, business, movies, cricket/sports, health, food, books, gaming,
astrology, contests, lifestyle, home decor, women and several other topics of
interest. We currently offer this information and content without charge to our
users.

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<PAGE>

         We believe that a significant percentage of our online users are
between 18 and 34 years old. As such, we place emphasis on reaching younger
users through more focused information and content relevant to this audience.

         Our primary information and content channels are broadly classified
into news content and interest specific subjects. News content includes:

     o    Current affairs and breaking news. Our in-house editorial staff and
          contract journalists provide our users with up-to-date news focused
          on events of interest to Indians, including feature news stories,
          interviews and online chats with leading Indian personalities. We
          provide breaking news and in-depth coverage of significant news and
          other events. We also aggregate news and photos from various news
          providers and websites, thereby giving our users access to news and
          information relevant to them from multiple sources and points of
          view.

     o    Business. Our business channel offers business news from India and
          coverage of Indian stock markets. This channel also provides regular
          columns and feature stories, as well as personal finance
          information.

     o    Movies. Our movie channel offers coverage of movie news from
          Bollywood and Hollywood with box office information, regular
          columns, stories, interviews with movie personalities, movie reviews
          and slide shows.

     o    Cricket/Sports. Our cricket/sports channel provides coverage of
          Indian and global sporting news. We provide in-depth coverage of
          cricket news from India and around the globe, including statistics,
          scores and schedules, regular columns, feature stories and
          interviews. We also provide special coverage of major sporting
          events of specific interest to Indians.

         Interest specific channels include topic of interest such as Auto,
Health, Home Decor, Personal Finance and Jobs.

         Content for these channels is managed through a combination of in-house
editorial staff, content syndication from newswires, content aggregation from
other publications and news providers, and by partnering with specialized
content providers. We also provide analysis of our in-house and aggregated news
content and an opportunity for users to participate in discussions and debates
on a variety of subjects online in our discussion forums. We also operate a
content crawling, aggregation and publishing platform, allowing us to aggregate
and publish, at a relatively low cost, a variety of channels without actually
incurring the expense of creating content.

         Our registered users have the opportunity to receive updated news and
information via e-mail by subscribing to a choice of daily newsletters such as
our daily News flash and Money flash.

         Our website also allows users to search the Rediff.com archives, which
contain over seven years of news and information, using our own search
technology. We also allow users to search the World Wide Web, with technology
licensed from an original equipment manufacturer ("OEM") partner.

         We recently launched a new Rediff.com homepage that incorporates Web
2.0 features which we believe enhanced usability and our user's browsing
experience. Our new homepage now has three distinct sections:

     o    Directory of Services, with newer additions for a focused and faster
          selection of services;

     o    Search, which helps users seek out airfares, jobs, ringtones,
          classifieds, news and electronics in three steps; and

     o    Featured Users, which enables greater community participation
          through blogs on Rediff iLand or by using Refiff Connexions to
          search for and network with people.

Community Features and Products
-------------------------------

         Through a single login facility, we provide a combination of free and
paid community features and products to consumers and businesses. Our
offerings include e-mail, instant messaging, chat, vertical search tools,
Matchmaker, astrology services, blogs, message board, social networking and
mobile services. Some of these features and products are offered without
charge,


                                      29
<PAGE>

while others are offered on a subscription or fee basis. Payment for our
fee-based services can be made by credit cards and within India by check/demand
draft or through direct debit of the user's Internet banking account.

         Our specific offerings include:

         E-mail

         We offer our users a variety of e-mail solutions tailored to their
needs and we believe that we have priced each of our branded e-mail products
competitively. All of our e-mail services offer Spam control and supports the
use of English and eleven Indian languages. Our e-mail offerings are described
below.

     o    Rediffmail, our flagship e-mail service, is provided free of charge
          to our users. Its features include the ability to search for
          specific e-mails or attachments, a drag and drop feature,
          auto-completion of email addresses and 1GB of free storage space
          (including the ability to send attachments of up to 10MB in size).
          Users can also subscribe to receive email over their mobile phone.
          As of March 31, 2006, we had approximately 43.05 million registered
          Rediffmail users.

     o    Rediffmail Plus is a subscription service that offers a variety of
          premium features. Rediffmail Plus subscribers receive an additional
          2GB of storage space, are able to send large attachments of up to
          10MB in size and can use a "briefcase" of up to 30MB in size. In
          addition, Rediffmail Plus accounts do not automatically expire when
          not used. Subscribers can also send up to 100 SMS messages and
          access their e-mail accounts with other client applications, free of
          charge. A one year subscription to Rediffmail Plus is currently
          priced at Rs.449 (or approximately US$10).

     o    Rediffmail Mobile is a subscription service with a variety of
          premium features similar to Rediffmail Plus but with the added
          functionality of receiving e-mail alerts on the user's selected
          mobile phone. This service is currently priced at Rs.399 (or
          approximately US$9) for a one year subscription.

     o    Rediffmail Pro is a subscription service targeted at business users.
          Rediffmail Pro offers small businesses, as well as large
          corporations, the ability to select, subject to availability, their
          own domain name for e-mail addresses. Subscribers are given five
          e-mail addresses and 1GB of storage space, which can be allocated
          among employees and increased without limitation at an additional
          charge. Rediffmail Pro also offers enhanced address book features
          and virus protection. Users may also access their other e-mail
          accounts at other POP accounts through their Rediffmail Pro
          accounts. A one year subscription to Rediffmail Pro is currently
          priced at Rs.1,695 (or approximately US$38). Rediffmail
          Enterprise Pro is a web based e-mail service for corporates having a
          large field force of agents/sales associates/dealers.

     o    In the first quarter of fiscal 2006 we launched "Rediff Business
          Solution", which is aimed at the small and medium enterprise ("SME")
          segment in India. Through this product, we offer SMEs a range of web
          management services such as domain name registration, web hosting
          and business email. Features offered include 100MB web hosting
          storage space, a choice of Windows or Linux platforms, 1 GB of
          webmail storage space and the ability to register domain names for
          up to ten years.

         Instant Messaging

         Rediff Bol instant messenger is a free service that enables instant
communication across the Internet with other Rediff Bol users, even for users
with low bandwidth Internet connections. Users can make PC-to-PC voice phone
calls, send text messages via Short Messaging Service ("SMS") free of charge to
mobile phones in India, create customized avatars and participate in chat rooms.
Rediff Bol has also been upgraded to include a video messaging feature, allowing
users to engage in interactive chats using both voice and video features. We
also offer Rediff Bol users the ability to communicate with others who share
their interests through various chat rooms organized by areas of interest and
geographic locations in India and around the world. Our chat services are
available free of charge.

         Matrimonial

         Rediff Matchmaker is a matrimonial service targeted at the global
Indian community. This service offers users the ability to post profiles of
themselves or others for free on the Rediff Matchmaker member database. Users
may also search the Rediff Matchmaker member database for free, and those with


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<PAGE>

profiles can initiate contact with and be contacted by other users. Rediff
Matchmaker also provides its registered members with a web based instant
messaging tool, InstaMatch. This service offers users the ability to post
profiles of themselves or others for free on the Rediff Matchmaker member
database. Users may also search the Rediff Matchmaker member database for free
and those with profiles can initiate contact with and be contacted by other
users. With a subscription to the Rediff Matchmaker service, users can also send
e-mails to and chat with potential matches. A three-month subscription to Rediff
Matchmaker is currently priced at Rs.1,000 (or US$20 for payments made in U.S.
dollars).

         Astrology

         Our astrology channel provides various astrology services, including
daily zodiac predictions free of charge. Depending on the service selected,
users can also purchase enhanced personalized astrological predictions about
their life, career, finances, business and relationships. Users can also ask
specific questions which are answered by a panel of astrologers.

         Our personalized astrology predictions are currently priced between
Rs.599 and Rs.2,399 each (or US$12.50 to US$50 each for payments made in U.S.
dollars). The Ask a Question product is currently priced at Rs.299 (or US$6 for
payments made in U.S. dollars).

         Blogs

         Rediff iLand, our Web 2.0-based blogging tool, is a free online
interactive community where users can set up their own blogs and publish their
thoughts and ideas directly and instantly to the Web and visit other blogs and
comment on them. Users can also post pictures and create multiple blogs under
a single username and password. We recently launched "Moblogs" - a mobile
blogging feature which allows users to upload pictures or text from mobile
phones directly onto their blogs - and we were the first in India to offer
this service.

         Social Networking

         Rediff Connexions is our free online social networking product. Users
become part of a network by creating and uploading profiles that include details
about their profession, education and interests. Thereafter, users can invite
friends to join their network and can become linked to a larger network.
Connexions includes a tool that allows a user to search for people who provide
specific services or products either from within a user's network or from other
users across the service. As of the date of this annual report, Connexions has
over 1.4 million beta testers across India, each of whom can provide feedback
regarding the platform.

         Search Services

         As India's Internet user base grows there is an increasing need for
localization of services. Recognizing this, in fiscal 2006 we launched a number
of initiatives.

     o    Fare Search, which allows users to search for and compare domestic
          airfares across Indian carriers. Users can also search for the
          lowest airfares for destinations with no direct flights. A recently
          added feature to Fare Search allows travel agents to upload, at no
          cost, special offers for air travelers.

     o    Job Search, which allows users to search for jobs across multiple
          job sites as well as private company and government job openings.
          Job Search also includes a tool that allows human resource
          consultants and recruiters to upload job vacancies, at no cost,
          directly to the Job Search website.

     o    Product Search, which allows users to search for and compare product
          features and prices for over 700 SKUs across major Indian cities. We
          recently introduced a "Price history" feature that enables users to
          track prices of mobile phones (a popular online shopping category)
          on a month-on-month basis.

     o    Newshound, our news service, which tracks over 1,000 news sources
          and which updates itself through a set of algorithms every few
          minutes and classifies relevant news and headlines within
          categories. Newshound is also accessible through general packet
          radio service (GPRS)-enabled mobile phones.

         Mobile Services

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<PAGE>

         Rediff Mobile offers mobile phone users a number of value added
services. Users order our value added services from their mobile phones by
sending a request via SMS to 7333 (seven triple-three), which is our
designated number for such services, or by browsing our content on GPRS or
wireless application protocol (WAP) enabled mobile phones. For certain value
added services, users can also place orders through our website, including
downloads, contests, services, and news and information. Our mobile offerings
are described below:

     o    Downloads. Users can download ringtones, polyphonic ringtones,
          logos, picture messages, wallpapers and games from our website. We
          have introduced search of ring tones on mobile phones. Downloads
          include popular Indian content, such as Indi-pop ringtones, Indian
          cricket team logos and wallpapers featuring Bollywood movie stars.
          Our ringtones, logos, picture messages and wallpapers are currently
          priced between Rs.1 and Rs.20 each (including the cost of the
          outgoing SMS which requests the download), and our games are
          currently priced between Rs.49 and Rs.99 each.

     o    Contests. Users can participate in contests in which they can win
          prizes by correctly answering questions sent to them by SMS (Short
          Messaging Service, or text messaging). Some of our recent contests
          include Rediff 11, Filmi 10, a Bollywood quiz contest. Users are
          charged only for the cost of each outgoing SMS message which
          responds to a question.

     o    Services. We offer users a variety of mobile phone related services
          by SMS, such as the ability to search, seek and flirt with other
          users, play interactive games, and receive jokes and astrological
          predictions. Users are charged only for the cost of each outgoing
          SMS message which requests the service.

     o    News and Information. Users can stay updated on current events by
          receiving cricket scores, news and stock quotes by an SMS message.
          Users are charged only for the cost of each outgoing SMS message
          which requests the news and information.

     o    E-mail and Instant Messaging. Rediffmail and Rediff Bol subscribers
          can receive, read and reply to e-mails and instant messages by SMS.
          Users are charged only a fee for each outgoing SMS which contains
          the e-mail or instant message.

         We have entered into agreements with major Indian mobile phone
operators permitting their mobile phone users to access our offerings. Our
agreements with these operators currently allow us to reach global systems for
mobile communications (GSM)-based and CDMA-based cellular providers, covering
almost the entire mobile footprint in India. Pursuant to the terms of our
agreements with Indian mobile phone operators, we receive a portion of the
amounts charged by these operators to their mobile phone users for using our
SMS- based offerings. With these partnerships, we believe that we have
established an extensive footprint in the country for value-added mobile
services.

Online Shopping
---------------

         Rediff Shopping is an online marketplace which allows users to purchase
products and services from various merchants. We offer products and services in
various categories, the most popular of which currently include electronics,
apparel, personal accessories, flowers and jewelry.

         Customers can pay for their purchases using a variety of payment
options, including credit cards, debit cards, online banking services, cash on
delivery, gift vouchers and checks/demand drafts. We have entered into
agreements with leading Indian banks to facilitate payment processes. We also
have a check-drop facility in over 300 cities and check-collection facilities in
the 20 largest towns in India.

         Rediff Shopping also features a vendor rating system to enable online
shoppers on our e-commerce platform to rate their shopping experience with
different online vendors. Customers are invited to provide feedback when items
are delivered, rating their experience with the vendor as satisfactory,
unsatisfactory or undecided. Vendors are rated based on the amount and type of
feedback provided, after applying internal logic calculations.

Auctions
--------

         In 2005 we launched Rediff Auctions, an e-commerce platform that allows
customers to use an online multi-price marketplace and bid for items listed for
sale by vendors. We provide vendors with the software tools that they can use to


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<PAGE>

upload and manage their online inventory. Vendor inventories are posted on the
auction site and bids are accepted for a specific period of time, after which
the customer with the highest bid wins the auction.

Our Revenue Sources

         India Online business primarily includes revenues from online
advertising and fee-based services. Online advertising includes revenues from
advertisements and sponsorships from customers. Fee based services include
revenues from online shopping, subscription services and wireless short
messaging services.

         Online Advertising

         Online advertising on our site includes revenues from banners, email,
text link campaigns and sponsorships of events. Sponsorships are obtained for
event-led features like the Indian Union Budget 2006 and the FIFA World Cup
2006. Our advertisers enter into agreements pursuant to which they either pay a
fixed fee for a given time-period, usually ranging from one month to one year,
or a variable fee depending upon the number of click-throughs or leads provided
to them through our website.

         Some of our advertisers also enter into agreements pursuant to which
they pay a fixed fee for a guaranteed number of impressions on our site. Our
rate per thousand impressions, commonly referred to as CPMs, for banner
advertisements varies, depending on location of the advertisements on our site,
the targeted geographical area and the extent to which the advertisements are
targeted to a particular audience. Discounts from standard CPM rates may be
provided for higher volume and longer-term advertising contracts. We have
introduced other formats for advertisers to broaden the appeal of the
advertisements to our users, such as text ads and dynamic hypertext markup
language.

         We had over 325 advertisers on our Rediff.com India website during
the fiscal year ended March 31, 2006. Our top ten advertisers accounted for
approximately 47% of our India advertising revenues for the fiscal year ended
March 31, 2006. A partial list of our advertising clients includes Citibank,
the ICICI Group, Hindustan Lever, Naukri.com, Shaadi.com, Microsoft,
Hewlett-Packard, Monster India and Pepsi.

         In fiscal 2005, we launched "Pay4Clicks", which is an automated
platform that allows merchants to advertise on the Rediff.com website, with a
fee being charged to the merchant each time a user clicks on its advertisement.
Users who click on an advertisement are directed to the merchant's website or
e-mail address or to the merchant's mobile phone via SMS. Our Pay4Clicks
platform is aimed at attracting Indian SMEs that have little or no online
presence or have limited advertising budgets, thereby allowing them to reach a
wider market for their products or services. We have also added a re-seller
module to allow our partners to sell advertisements on the Rediff.com website.

         In fiscal 2006 we launched our Rediff Classifieds platform, which is a
performance-based advertising platform which allows the display of classified
advertisements in accordance with defined categories. It has an automated ad
creating and uploading front-end tool and a mechanism that allows advertisers to
receive responses via SMS through any mobile phone in India.

         Fee-based services

         Revenues from fee-based services primarily include income from various
paid subscription service products, from our online shopping marketplace and
income from mobile services.

         Subscription service revenues primarily include income from our various
paid e-mail service products, our matrimonial subscription product (Rediff
Matchmaker) and our domain name registration and web hosting services. The
revenue for subscription based service products is recognized ratably over the
period of subscription.

         Online shopping revenues primarily consist of commissions earned on the
sale of electronics, books, music, apparel, confectionery, gifts and other items
to customers who shop from vendors on our online store. Revenues from online
shopping services also include fees charged to vendors for creating, designing
and hosting the vendors' product information on our website. Such hosting fees
are amortized over the hosting contract period.


                                      33
<PAGE>


         Fee-based revenues are also derived from providing mobile value-added
services. We have contracts with mobile phone operators for sharing revenues
from these services. SMS-based revenues are recognized when the service is
performed.

Our Infrastructure

Technology
----------

         Our operating infrastructure is scalable and has been designed with a
view to serving and delivering millions of page views per day. This allows users
to access our products and services quickly and efficiently from different
locations worldwide. Our infrastructure is also designed to provide high-speed
access by forwarding queries to web-hosting sites with greater resources or
lower loads. In addition, our webpages are generated, served and cached by
servers located at co-location web hosting sites in India and in the United
States.

         We use Apache and IIS servers located in India and the United States
and which run on Linux, Solaris and Windows platforms. Servers in India are
maintained at Videsh Sanchar Nigam Limited ("VSNL") and the Reliance Data Centre
in Mumbai, while servers in the United States are maintained the Abovenet Data
Centre in California. We also use the Akamai Inc. content delivery network. We
believe that using these hosting services enhances our ability to protect our
systems from power loss, break-ins and other potential external causes of
service interruption. These hosting services also provide continuous customer
service, multiple Internet connections and continuous power supply to our
systems. In addition, we conduct online monitoring of all our systems for
accessibility, load, system resources, network- server intrusion and timeliness
of content.

Online Advertising
------------------

         Our sales and marketing professionals are responsible for seeking
additional advertisers and e-commerce merchants, creating advertisements, as
well as obtaining and analyzing customer feedback. Sales team members are based
in Mumbai, New Delhi, Bangalore, Chennai, Hyderabad and New York. The sales team
coordinates regularly regarding advertising across all of our businesses. Our
sales team includes designers, copywriters, programmers, campaign managers and
technology personnel. As of March 31, 2006, our sales team consisted of 95 sales
and marketing professionals.

         Many of the leading advertising agencies have expanded their operations
with the establishment of interactive divisions. These divisions promote the
Internet as an advertising medium among leading marketers in India. We closely
interact and support these advertising agencies in garnering larger online
advertising budgets from their clients.

         Our sales team sells advertising space on our websites. They focus
their sales efforts on the top 200 advertisers in India and on key consumer
categories. Our sales team consults regularly with advertisers on design and
placement of their web-based advertising, provides advertisers with advertising
measurement analysis and focuses on providing a high level of customer service
satisfaction.

Online Shopping
---------------

         Our shopping platform has a host of user-friendly features such as
product search and detailed product category listing. The "tracking order",
"view account" and "shopping bag details" features make online shopping more
convenient for users. Users can pay for purchases by credit card, local check,
cash-on-delivery (C.O.D.) or direct debit to an Internet banking account if
they have an account with designated Indian banks. Our customer service officers
address customer inquiries and solicit feedback from users to continuously
improve our offerings. Customers are invited to provide feedback when items are
delivered using our vendor rating system, rating their experience with a vendor
as satisfactory, unsatisfactory or undecided. Vendors are rated based on the
amount and type of feedback provided, after applying internal logic
calculations.

         Once a user places an order on our website, we process and collect
payment (except where the method of payment is C.O.D.) and notify the merchant
who then packages the product and arranges for delivery through one of our
designated couriers. We make payment to the merchant once we receive proof that
the merchant has dispatched the product. Most products purchased through our
website are delivered within 10 business days. Product warranties are the
responsibility of those who sell products on our website's marketplace, although
our reputation can be adversely affected if a user is not satisfied with a
purchase.

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<PAGE>

         Pursuant to the terms of our agreements with merchants, we receive a
one-time entry fee and a separate commission on the sale of each product posted
on our website.

         Our sales force targets manufacturers and vendors of the leading
products in India for them to offer their products through the Rediff Shopping
platform. We also target manufacturers and vendors that supply products in
categories that are fast moving over the Internet.

Electronic Payments
-------------------

         We were among the first Internet companies in India to accept credit
cards for online payments. Users can use all leading U.S. dollar and Rupee
credit cards and online money transfers for online payments. All online
transactions are secured by Secure Socket Layer (SSL) technology.

         We have entered into agreements with Citibank, N.A. and ICICI Bank
Limited to automate Visa and MasterCard credit card payments through our
website.

         We also have arrangements with a number of major banks in India to
facilitate online money transfers.

United States Publishing Business

         Our United States publishing business primarily consists of the Rediff
India Abroad website, which is hosted in the United States and is targeted at
the Indian-American community in North America, our India Abroad newspaper and
our India in New York newspaper. For the fiscal year ended March 31, 2006, the
United States publishing business generated US$6.5 million of revenues,
accounting for 34.9% of our total revenues. We previously offered a Rediff Radio
service in North America but discontinued this service in October 2005.

Rediff India Abroad website
---------------------------

         The Rediff India Abroad website offers information and content which is
similar to the information and content on our Rediff.com India website, along
with additional offerings relevant to North American users.

India Abroad
------------

         India Abroad, which we acquired in April 2001, was established over 35
years ago and is one of the oldest weekly newspapers focused on the Indian
community in North America. The newspaper is published in five North America
editions - New York, Tristate, Chicago/Dallas, Los Angeles and Canada.

         The paper is divided into five sections: News, Community, Business and
Sports, Classifieds, and a magazine. India Abroad's content is targeted at
Indians living in North America.

         The paper is available for home delivery primarily in the United States
and Canada. The annual subscription rate is US$32 in the United States, US$26
in Canada, and Rs.1,500 in India (equivalent to approximately US$32).
Subscriptions for six months, two years and life-time are also available. India
Abroad is also available at leading newsstands, Indian grocery stores and other
retail outlets across North America, generally at US$1 per copy. Subscriptions
comprise approximately 80% of our circulation.

         India Abroad offers classified advertising, which includes
advertisements listed together in sequence by the nature of the advertisement,
such as matrimonial, business/finance, employment, medical and real estate. The
paper also has a Bulletin Board on the back cover which offers enhanced
classified advertising. Prices for our standard classified advertisement
packages range from US$20 for 10 words in regular liner with no border to US$240
for 100 words (1colX4") with large text and a border. There is a 50%
surcharge for running advertisements in all of the editions. India Abroad also
has an associated website, www.indiaabroad.com, which allows users to start and
renew subscriptions, make payments and change their delivery addresses. Users
can also order classified advertisements through this website.

India in New York
-----------------

         India in New York, a guide to events and entertainment from India
Abroad, was started in 1997 as a sister publication of India Abroad. India in
New York features news, events, sports and entertainment and a wide array of
classifieds. The India in New York newspaper is distributed free in the Tristate
area of New York, New Jersey and Connecticut. India in New York is available at


                                      35
<PAGE>

restaurants, temples, Indian associations, community events and Indian grocery
stores in the Tristate area.

Competition

         Online
         ------

         There are a number of companies that provide websites focusing on India
and the global Indian community. These companies compete with our websites for
visitors, online advertising, e-commerce and subscription revenues. Competition
for visitors and e-commerce is intense and is expected to increase in the future
as there are no substantial barriers to entry in our market.

         Our ability to compete successfully depends on many factors including:

     o    our ability to adapt to new technologies and to develop new products
          and services;

     o    the user friendliness of our services;

     o    our sales and marketing efforts;

     o    the performance of our technology; and

     o    ability to fund our operations.

         We compete with providers of Indian content over the Internet,
including web directories, search engines, content sites, websites, horizontal
sites and Internet service providers. Our current and anticipated competitors
include:

     o    Google;

     o    Yahoo.co.in and Yahoo.com (Yahoo, Inc.);

     o    MSNBC.co.in and MSN.com (Microsoft Corporation);

     o    IndiaTimes.com (Times Internet Ltd.); and

     o    Sify (Sify Ltd.).

         We also compete with other forms of media, such as print media, radio
and television, for advertisers and advertising revenue.

         Many of our competitors have a longer operating history, greater name
recognition and customer base, and greater management, financial, technical,
marketing, sales, brand, and other resources than we do. They can use their
superior experience and resources in a variety of competitive ways, including by
investing more aggressively in research and development, creating superior
content, making acquisitions, and competing more aggressively for advertisers.
There has also been a trend toward industry consolidation so our smaller
competitors today may become larger in the future. If our competitors are more
successful than we are at generating visitors and website traffic due to
superior content and other service offerings, our revenues may decline.

         Print
         -----

         There are a limited number of companies that provide newspapers
focusing on India and the global Indian community. These newspapers compete with
India Abroad for advertising revenues. Our current competitors include:

     o    India West;

     o    Indian Express; and

                                      36
<PAGE>

     o    News India Times.

Intellectual Property

         Intellectual property rights are important to our business. We rely on
a combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
require employees, independent contractors and, when practicable, vendors to
enter into confidentiality agreements upon the commencement of their
relationships with us. These agreements generally provide that confidential
information developed or made known during the course of a relationship with us
must be kept confidential.

         Our efforts to protect our intellectual property may not be adequate.
Our competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information, including our domain name.
For example, there are some parties who have registered domain names similar to
or slightly different from our domain name, Rediff.com, and we have filed
lawsuits in India to protect our rights in respect of our domain name. We do not
believe that the outcome of these lawsuits will have a material adverse effect
on our business. However, the laws of India do not protect proprietary rights to
the same extent as the laws of the United States. Further, the global nature of
the Internet makes it difficult to control the ultimate destination of our
products and services. In the future, further litigation may be necessary to
enforce our intellectual property rights or to determine the validity and scope
of the proprietary rights of others. Any such litigation could be time-consuming
and costly.

         We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our website
or other product or service offerings overlap with competitive offerings.
Defending against these claims, even if not meritorious, could be expensive and
divert our attention from our operations. If we become liable to third parties
for infringing their intellectual property rights, we could be required to pay a
substantial damage award and be forced to try to obtain or develop
non-infringing technology, obtain a license or cease selling the applications
that contain the infringing technology. If this were to occur, we may be unable
to develop non-infringing technology or obtain a license on commercially
reasonable terms, or at all.

         We also rely on a variety of technologies that are licensed from third
parties. The software developed by these third parties is used in our website to
perform key functions. These and other third-party licenses may not be available
to us on commercially reasonable terms in the future. The loss or inability to
obtain or retain any of these licenses could delay the introduction of software
enhancements, interactive tools and other features until equivalent technology
could be licensed or developed. Any such delays could materially adversely
affect our business, operating results and financial condition.

         We have filed trademark applications for "www.rediff.com" and "Rediff
On The Net" in India and for "Rediff" and "Rediff.com" in the United States,
which are pending. Certificate of Registration of "Rediff On The Net" and Design
(Square) bearing no. 2511409 for the mark being registered on November 27, 2001
under International classes 35, 36, 38, 41 and 42, has been received by us from
the United States Patent and Trademark Office.

Facilities

         India
         -----

         Our corporate headquarters are located in Mumbai, India, where we
lease approximately 17,000 square feet, located in two buildings. In one
facility we lease approximately 11,000 square feet and in the other, we lease
a total of approximately 6,000 square feet under two separate lease
agreements. The lease for our 11,000 square foot facility has been extended
until January 20, 2008. The lease for a 3,000 square foot section of the
second facility expires on October 31, 2006 and we have indicated to our
landlord that we wish to extend the lease for this facility. The lease for the
remaining 3,000 square foot section of the second facility expires on
September 30, 2008.

         We also lease approximately 2,500 square feet of office space in New
Delhi, India, which serves as a branch office. This lease expires on December
31, 2006.

         United States
         -------------

                                      37
<PAGE>

         Our India Abroad subsidiary leases approximately 6,250 square feet of
office space in New York, the lease for which expires on October 31, 2007.

         Additionally India Abroad leases approximately 1,500 square feet for
office space in Chicago, Illinois, the lease for which expires on March 31,
2008.

Legal Proceedings

         Securities Actions
         ------------------

         Khanna v. Rediff.com India Limited, et al., United States District
Court of the Southern District of New York, Case No. SDNY 01CV 3814. On April
16, 2001, four of our officers and directors, including Ajit Balakrishnan, our
Chairman and Managing Director, a group of investment banks that acted as
underwriters in our June 2000 IPO and listing of ADSs and we, were named as
defendants in Khanna v. Rediff.com India Ltd. et al., (the "Khanna Action"), a
class action lawsuit filed in the U.S. District Court for the Southern District
of New York. The plaintiffs allege that our registration statement filed with
the SEC contained misleading statements and omissions in violation of the
Securities Act, the Exchange Act and Rule 10b-5 under the Exchange Act. The
plaintiff class in this lawsuit has been defined as all persons who purchased
ADSs from the time of the IPO through April 14, 2001 and seeks unspecified
damages.

        -  Several other class action lawsuits have been filed against us and
           other defendants stating substantially the same allegations as set
           forth in the Khanna Action. As of the date of this annual report,
           we are aware of the following related lawsuits pending in the U.S.
           courts:

          o    David & Chaile Steinberg v. Rediff.com India Limited, et al.,
               United States District Court of the Southern District of New
               York, Case No. SDNY 01CV 3471;

          o    Thomas Karakunnel and Roger Steward v. Rediff.com India
               Limited, et al., United States District Court of the Southern
               District of New York, Case No. SDNY 01CV 3814; and

          o    Anup Kumar Bhasin v. Rediff.com India Limited, et al., United
               States District Court of the Southern District of New York,
               Case No. SDNY 01CV 3593.

         All the cases have been consolidated before a single judge in the
United States District Court for the Southern District of New York.

         Shives et al. v. Bank of America Securities, LLC et al., United States
District Court of the Southern District of New York, Case No. 01 CV 3814. On
June 5, 2001, twenty-four companies, including us, who had issued securities to
the public in their initial public offerings, together with the investment banks
who acted as underwriters in these initial public offerings, were named as
defendants in the action of (the "Shives Action"), a class action lawsuit filed
in the U.S. District Court for the Southern District of New York. Also named as
defendants in this lawsuit were four of our officers and directors, including
Ajit Balakrishnan. The plaintiffs in this lawsuit allege that the underwriter
defendants combined and conspired to inflate the underwriting compensation they
received in connection with the initial public offerings of the defendant
companies, to manipulate and inflate the prices paid by plaintiffs for
securities issued in the initial public offerings and to restrain and suppress
competitive pricing for underwriting compensation. The plaintiffs allege claims
pursuant to the U.S. Sherman Antitrust Act, 1890, as amended, the U.S. Clayton
Antitrust Act, 1914, as amended, and the Securities Act against the underwriter
defendants. The plaintiffs further allege that the defendants, including us and
certain of our officers and directors, made material misstatements and omissions
in violation of the Securities Act and the Exchange Act by concealing or failing
to disclose the compensation earned by the underwriters in the initial public
offerings. As against us and our officers and directors, the Complaint defines a
"Rediff.com Sub-Class" consisting of all persons who purchased securities of
Rediff.com India Limited from the time of the IPO through April 4, 2001 and
seeks unspecified damages. This case has been consolidated with several hundred
other similar cases filed against other issuers who had IPOs in 2000 and 2001.

         On November 24, 2003, plaintiffs' counsel in the Khanna action and
Shives action filed a Consolidated Amended Securities Class Action Complaint
("Consolidated Complaint") which incorporates the material allegations from
Khanna action and Shives action. On January 30, 2004, we and our officers and


                                      38
<PAGE>

directors filed a motion to dismiss the Consolidated Complaint. The underwriter
defendants filed a separate motion to dismiss. On October 15, 2004 the District
Court judge granted in part and denied in part the motions to dismiss and set a
pre-trial discovery schedule. At a status conference held on January 26, 2005,
the District Court judge set a deadline for pre-trial fact discovery and
referred the parties to a magistrate judge for settlement discussions. On May
11, 2001, we received from our underwriters in our IPO a demand for
indemnification of the underwriters' legal fees and liabilities. Our Board of
Directors resolved to indemnify our officers and directors named as defendants
against their legal fees and liabilities, to the extent permitted under Indian
law. At the time of the IPO, we purchased Directors & Officers liability
insurance (the "D&O Policy"), providing coverage against federal securities law
claims. The D&O Policy includes coverage for our cost of defending the class
action lawsuits, our indemnification liabilities to our officers and directors,
and our indemnification liabilities to our underwriters. The coverage of the D&O
Policy is denominated in Indian Rupees, but the policy proceeds are payable in
U.S. dollars. Based on noon buying rate at March 31, 2006, the face amount of
the D&O Policy is approximately US$20.1 million. The proceeds of the D&O Policy
available to satisfy any judgment against us, or any judgment against persons
whom we are obligated to indemnify, will be reduced by the amount of the legal
fees and associated expenses incurred in the course of our defense and the
defense of the individual defendants and the underwriters which are paid from
the D&O Policy. The D&O Policy includes a deductible of approximately US$250,000
(based on the noon buying rate at March 31, 2006), which must be paid by us
before the D&O Policy proceeds would be available. The D&O Policy contains
various exclusions, which, if met, may result in the denial of insurance
coverage. We have been advised by the insurance carriers who wrote the D&O
Policy that they are not aware of any facts or circumstances that would cause
any of the exclusions to apply, but that the carriers have reserved their rights
to claim that the exclusions do apply if any such facts or circumstances come to
their attention.

         Action Relating to Access to Pornographic Material
         --------------------------------------------------

         Sunil N. Phatarphekar & Ors. v. Abhinav Bhatt and Ors., Mumbai High
Court, Criminal Writ Petition No. 1754 of 2000. On June 21, 2000, Rediff, its
directors and others (Ajit Balakrishnan, Arun Nanda, Abhay Havaldar, Sunil
Phatarphekar, Charles Robert Kaye and Tony Janz) were named as accused in a
criminal complaint (RCC Complaint Number 76 of 2000) filed by Mr. Abinav Bhatt,
a 22 year old student, before the Judicial Magistrate, First Class, Pune, India,
alleging commission of an offence, under Section 292 of the Indian Penal Code
("IPC") for distributing, publicly exhibiting and putting into circulation
obscene, pornographic and objectionable material. The Complaint alleged that we,
through our website "www.rediff.com", provided a search facility that enabled
Internet users to view pornographic, objectionable and obscene material. On
November 27, 2000, the Judicial Magistrate passed an order in the Complaint
holding that a prima facie case under Section 292 of the IPC had been made out
against us and directed commencement of criminal proceedings against all the
defendants. A criminal writ petition was filed in the High Court of Mumbai
(Criminal Writ Petition Number 1754 of 2000), seeking among other relief the
setting aside of the order of the Judicial Magistrate. The High Court of Mumbai
in its order dated December 20, 2000, while granting ad-interim relief to the
petitioners in the Writ Petition, stayed the order of Judicial Magistrate
pending final disposal of the Writ Petition. The Writ Petition has been admitted
by the High Court of Mumbai. While we believe that the lawsuit is without merit,
and that we and our directors have a valid defense to the Complaint, in the
event that we are unsuccessful in our defense, we and our directors may face
both criminal penalties and monetary fines or damages.

         Current Indian laws provide that if any person publishes or transmits
or causes to be published in the electronic form, any material which is
lascivious or appeals to the prurient interest or if its effect is such as to
tend to deprave and corrupt persons who are likely, having regard to all
relevant circumstances, to read, see or hear the matter contained or embodied in
it, shall be punished (i) for the first conviction, with imprisonment of up to
five years and with a fine of up to Rs. 100,000 (approximately US$ 2,000); and
(ii) in the event of a second conviction, with imprisonment of up to ten years
and with a fine of up to Rs. 200,000 (approximately US$ 4,000).

         Action Relating to Copyright Violation
         --------------------------------------

         A complaint was filed by the IMI, a society representing various music
companies in Magistrate's Court India against three of our directors. The
complaint alleges that by providing links to MP3 sites through its directory we
have been guilty of violating Section 51 of the Copyright Act 1957. The
complaint alleges that the MP3 sites to which links were provided permitted
downloading of music which had not been authorized to be so downloaded by
copyright owners who are members of IMI. Our directors are named as parties to
the lawsuit because, according to the complaint, the directors are in charge of
our affairs and are hence deemed to be guilty of committing the offense. Our
directors have presently been exempted from personal appearance. Our directors
initially filed an application for discharge of the complaint before the
Magistrate. However, a judgment of the Supreme Court of India held that
applications for discharge cannot be heard by the Magistrate who will be
conducting the trial in relation to a pending complaint. As such, the
application for discharge of the complaint before the Magistrate will be


                                      39
<PAGE>

withdrawn and a fresh application for quashing the complaint will have to be
filed in the High Court. Such application is being prepared and will be filed
shortly. Although our directors believe they have valid defenses to the action,
if they are unsuccessful after exhausting all legal remedies, our directors
could face both criminal penalties and monetary fines.

         Actions relating to Trademark Infringement
         ------------------------------------------

         A complaint was filed by Cartier International B.V. ("Cartier
International") against Lotus Safetywear Ltd. ("Lotus Safetywear") and us
alleging that Lotus Safetywear has used the trademark "Cartier" on products
that are being sold on our Rediff Shopping website. Cartier International is
seeking a permanent injunction restraining the defendants, including us, from
using without license or permission the "Cartier" trademark and/or such other
identical or deceptively similar marks. Cartier International is also claiming
damages in the amount of Rs.2.0 million (US$44,964). We have filed our
response to Cartier International's allegations and among the defenses we have
raised are: (a) it is Lotus Safetywear, and not Rediff.com, that has used the
"Cartier" trademark and that we have not infringed on any of Cartier
International's intellectual property rights; (b) the Rediff Shopping website
only provides an online platform that enables customers and sellers to enter
into sale/purchase transactions and we are not involved in the sale or
purchase of the goods/products listed on our website; and (c) vendors such as
Lotus Safetywear are required to comply with the terms and conditions we
impose on vendors using Rediff Shopping, which includes providing us with the
description of their products, prices and product images, and which also
specifically provides that vendors shall not infringe on third party rights,
including third-party intellectual property rights. Although we believe that
we have valid defenses to the action, if they are unsuccessful after
exhausting all legal remedies, we could be subject to monetary fines or damages.

         We are also subject to other legal proceedings and claims, which have
arisen in the ordinary course of its business. Those actions, when ultimately
concluded and determined, will not, in the opinion of management, have a
material effect on our results of operations or financial position.

Subsidiaries

         Rediff Holdings, Inc., or Rediff Holdings, is our wholly owned
subsidiary and is incorporated in the State of Delaware. Rediff Holdings holds
all of the outstanding and voting shares of Rediff.com, Inc. (formerly,
thinkindia.com) and substantially all of the outstanding and voting shares of
India Abroad.

         Rediff.com, Inc., which runs our U.S.-based Internet website, is
incorporated in Delaware. India Abroad is a New York corporation, which
publishes a weekly newspaper targeted primarily at the Indian community in North
America. Value Communication Corporation (or ValuCom), an Illinois corporation
incorporated in 1996, is another subsidiary of Rediff.com India Limited. In
April 2004, we sold ValuCom's business to Worldquest Networks, Inc.

Government Regulation

General

         Our online business is primarily subject to regulation by the Ministry
of Information Technology, which was formed in October 1999 and is a part of the
Government of India. We may also be subject to regulation by the Ministry of
Communications of the Government of India and the TRAI.

         On June 9, 2000, the Indian IT Act was enacted and was made effective
as of October 17, 2000. The IT Act has been enacted to:

     o    give legal validity to online contracts;

     o    give legal validity to digital signatures;

     o    make electronic records admissible in court in evidentiary
          proceedings;

     o    set default rules for time and place of dispatch and receipt of
          electronic records;

                                      40
<PAGE>

     o    allow for filing of documents with the Government of India in
          electronic form;

     o    allow for retention of documents, information or records in
          electronic form;

     o    set up certifying authorities to issue and supervise digital
          signatures;

     o    set up a controller of certifying authorities to monitor and
          supervise the certifying authorities;

     o    set up Cyber Regulations Appellate Tribunals to act as
          quasi-judicial bodies with respect to disputes relating to online
          transactions; and

     o    penalize computer crimes.

         Although the IT Act has been enacted, clarity on various issues
including legal recognition of electronic records, validity of contracts entered
into through the Internet, validity of digital signatures needs to be
established.

         New Telecom Policy, 1999

         The New Telecom Policy, 1999, or the New Telecom Policy, deals with
restructuring of the Indian telecommunications sector. The New Telecom Policy
states that Internet Service Providers, or ISPs, who wish to provide
applications such as tele-banking, tele-medicine, tele-education, tele-trading
and e-commerce, will be allowed to operate using infrastructure provided by
various Internet access providers. The New Telecom Policy also provides that no
license fees will be charged for providing the specific services, but
registration with the Government of India will be required. The New Telecom
Policy prohibits such service providers to provide switched telephony.

         If the New Telecom Policy is enforced in its current form, we may have
to register our services with the Government of India and we may also be
governed by the regulations issued by the TRAI.

         The TRAI was established in January 1997 by the Government of India
under the provisions of the Telecom Regulatory Authority of India Act, 1997, as
an autonomous body to regulate the telecommunications industry. On January 24,
2000, the President of India passed an ordinance to recast the TRAI. The
ordinance set up a Telecom Disputes Settlement and Appellate Tribunal to
adjudicate any dispute between a licensor and licensee, between service
providers, appeals of telecom service providers and between service providers
and groups of consumers. This ordinance has been replaced by the Telecom
Regulatory Authority of India (Amendment) Act, 2000. The TRAI under the amended
Act has powers to decide on new licenses and their terms and conditions, the
levy of fees and charges on services, interconnectivity between the telecom
service providers and perform administrative and financial functions entrusted
to it by the Government of India. The new TRAI has no adjudicatory powers, as
these powers now vest in a Telecom Disputes Settlement and Appellate Authority.
Telecom service providers can approach this appellate authority and the orders
of this authority can be challenged only in the Supreme Court of India.

         Privacy

         At present India does not have any specific legislation to prevent
invasion of privacy by private parties. The Constitution of India protects the
privacy of private parties against any invasion by the state or government, but
it may not be possible to invoke this protection against violation by private
parties. There is no pending or proposed legislation that seeks to penalize or
regulate violation of privacy by private parties.

         Encryption

         Telecommunications in India are governed by the Indian Telegraph Act,
1885, as amended (the "Telegraph Act"), and the Indian Wireless Telegraphy Act,
1933, as amended (the "Wireless Act"). Pursuant to the Telegraph Act, the
provision of any telecommunications services in India requires a license from
the Government of India obtained through the Department of Telecommunications.
While the Telegraph Act sets the legal framework for regulation of the
telecommunications industry, the Wireless Act regulates the possession of
wireless telegraphy equipment. Encryption hardware may be considered as an
instrument capable of being used for the transmission and reception of
telecommunications signals. Any person intending to use encryption hardware may


                                      41
<PAGE>

be required to obtain prior permission from the Department of Telecommunications
of the Government of India.

         The guidelines for ISPs permit the use of encryption equipment for
providing secrecy in transmission up to a level of encryption specified by the
Government of India. However, if the encryption equipment of levels higher than
specified is to be deployed, ISPs have to obtain the clearance of the Government
of India and should deposit one set of keys with the Department of
Telecommunications.

         These guidelines are applicable to ISPs and it is uncertain whether
they will apply to us. For using encryption hardware, we may have to obtain
prior approval from the Department of Telecommunications. However, it is
uncertain whether we are required to obtain any approval from the Department of
Telecommunications or any other department for using encryption software.
Furthermore, there may be certain restrictions in relation to the import of
encrypted software into India.

         Imports

         We may be required to import into India computer hardware and Internet
related software purchased from foreign manufacturers for our business. These
imports will be subject to the Export and Import Policy issued by the Ministry
of Commerce of the Government of India. At the time of import, we may be
required to pay a customs duty pursuant to the Customs Tariff Act, 1975, as
amended. We will also be subject to the Foreign Exchange Management Act, 1999,
and the rules thereunder ("FEMA"), in connection with payments in foreign
currency to the manufacturers of these products. We may require the approval of
the Reserve Bank of India if the payment in respect of such import is made
beyond a period of 6 months from the date of shipment.

Ownership of Foreign Securities

         We may wish to invest in the securities of foreign companies. The FEMA
may require that we obtain permission from the Reserve Bank of India prior to
making any such investment.

                                      42
<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion of our financial condition and operating
results should be read in conjunction with the consolidated financial statements
and the related notes included elsewhere in this annual report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this annual report particularly in the "Risk Factors" section of this annual
report.

Overview

         We are a leading Internet destination in India focusing on India and
the global Indian community. Our websites in India and the United States include
information and content relevant to Indians, such as news, business, movies and
cricket/sports, community features, such as e-mail, chat, messenger, e-commerce,
matchmaker, astrology, blogs and mobile services. Many of these services are
provided free of charge, while others are subscription based. We also provide
wireless mobile services from PCs to mobile phone subscribers. With 43.05
million online registered users worldwide as at March 31, 2006, we believe
Rediff.com is one of the most recognized online brands both in India and among
the Indian community worldwide.

         Additionally, we publish a weekly newspaper, India Abroad, in the
United States and Canada. In February 1996, we initiated our online content
offerings with rediff.co.in and rediffindia.com. We later combined the sites
into rediff.com, our online website in India. With the acquisition of
thinkindia.com, Inc. (later renamed Rediff.com, Inc.) in February 2001, we
launched Rediff U.S.A. (re-branded as Rediff India Abroad), an online website
providing content, community and online shopping primarily for our users in
North America.

         On April 8, 2004, we sold our phone card business to Worldquest
Networks, Inc. The results of the operations in the phone card business, are
disclosed as discontinued operations in our consolidated statement of
operations.

         Our reportable business segments are:

     o    India Online business, which primarily includes revenues from online
          advertising and fee-based services. Online advertising includes
          advertisements and sponsorships and designing and managing
          customers' websites. Fee-based services include online shopping,
          subscription services and wireless short messaging services.

     o    U.S. Publishing business, which primarily includes revenues from
          Rediff India Abroad website and revenues from the print newspapers
          India Abroad and India in New York.

         Revenues from our reportable business segments were as follows:

<TABLE>
<CAPTION>

                                               For the Fiscal Years Ended March 31,
                                      ---------------------------------------------------------
                                          2004                  2005                   2006
                                      ---------------   -----------------     -----------------
<S>                                   <C>               <C>                   <C>
India Online business ............    US$3,636,183      US$6,556,320          US$12,174,927
U.S. Publishing business .........       5,810,420         6,070,344              6,525,753
                                      --------------    --------------        ----------------
Total revenues ...................    US$9,446,603      US$12,626,664         US$18,700,680
                                      =============     ==============        ================
</TABLE>

         During the year ended March 31, 2004, we discontinued our earlier
practice of allocating our operating expenses to our business segments, as our
management focuses primarily on the segment's profits before operating expenses
to measure the performance of each operating segment.

         We have incurred significant net losses and negative cash flows since
our inception in January 1996, although we earned net income of US$1.2 million
for the fiscal year ending March 31, 2006. As of March 31, 2006, we had an
accumulated deficit of approximately US$54.6 million. We will need to generate
additional revenues, while controlling our expenses, to continue to remain
profitable and to reduce our accumulated deficit.

                                      43
<PAGE>

         In June 2000, we issued 5.3 million ADSs, representing 2.65 million
Equity Shares, at a price of US$12.00 per ADS, raising net proceeds of US$57.3
million, after underwriting discounts and expenses, and we listed our ADSs on
the NASDAQ. In November 2005, we issued 3.0 million ADSs, representing 1.5
million Equity Shares, at a price of US$15.86 per ADS, raising net proceeds of
US$44.1 million, after underwriting discounts and other expenses, and these ADSs
were also listed on the NASDAQ. The net proceeds of our ADS offerings have been
used by us, and in future, are intended to be used by us, to develop content for
our Internet website, to advertise and promote our brand, and for general
corporate purposes, including capital expenditures, strategic investments,
partnerships and acquisitions.

Critical Accounting Policies

         Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and the related
disclosures of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including but not limited to allowances for doubtful
accounts, the valuation of investments, income taxes, restructuring costs,
contingencies, goodwill impairment and litigation. We base our estimates on
historical experience and on other assumptions that we believe are reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.

         The following are the significant accounting policies used in the
preparation of our consolidated financial statements.

Revenue Recognition

India Online business

         Revenues from advertisement and sponsorships are recognized ratably
over the contractual period of the advertisement, commencing from the time the
advertisement is placed on the website. Revenues are also derived from sponsor
buttons placed in specific areas of our website, which generally provide users
with direct links to sponsor websites. Such revenues are recognized ratably
over the period in which the advertisement is displayed, provided that no
significant obligations remain and collection of the resulting receivable is
probable. Our obligations sometimes include guarantee of a minimum number of
impressions or number of times that an advertisement appears in pages viewed
by users of our website. To the extent that minimum guaranteed impressions are
not met, we defer recognition of corresponding revenues until the guaranteed
impression levels are achieved. We also earn revenues from sending e-mail
messages to some of our users on behalf of advertisers and these revenues are
recognized in the period when such e-mail messages are sent.

         We also earn revenues on sponsorship contracts, which include fees
relating to the design, coordination and integration of the customers' content,
which are recognized ratably over the term of the contract.

         Subscription revenues primarily include income from various
subscription based products, such as paid e-mail, Matchmaker, mobile based
services, astrology and other services that cater to a cross section of our
registered user base. Revenues for subscription based service products are
recognized ratably over the period of subscription.

         Fee-based services include online shopping, subscription services and
wireless mobile services. Online shopping marketplace revenues primarily consist
of commission from the sale of electronics, apparel, books, music,
confectionery, gifts and other items. Customers directly place orders with
vendors through our website. When an order is placed, we inform the vendor
through an intranet and also confirm whether payment has already been collected
by us through credit card/debit card or checks, or whether the payment is to be
made by the customer on a C.O.D. basis. The vendor then dispatches the products
to the customers. The vendor sends a periodic summary of transactions executed
for which we collected payments on its behalf. We make payment to the vendor
after deduction of our share of commission and costs. We recognize as revenues
commissions earned on these transactions and shipping costs recovered from
customers. Revenues from online shopping services also include fees charged to
vendors for creating, designing and hosting the vendors' product information on
our website. Such fees are amortized over the hosting contract period.

         We also derive revenues from providing value added mobile services such
as ringtones, picture messages, logos, wallpapers, e-mail and other related


                                      44
<PAGE>

products to mobile phone users. Our contracts are with third-party mobile phone
operators from whom we receive a share of revenues for such services. SMS based
revenues are recognized when the service is performed.

U.S. Publishing business

         U.S. Publishing business primarily includes revenues from subscription
and advertising services from the publication of India Abroad, India in New York
and our India Abroad website.

         We recognize advertising revenues at the time of publication of the
related advertisement. Subscription income is deferred and recognized pro rata
over the term of the subscription. Revenues from banners and sponsorships on our
Rediff India Abroad website are recognized over the contractual period of the
advertisement, commencing from the date the advertisement is placed on the
website, provided that no significant obligations remain and collection of the
resulting receivable is probable. Obligations may include guarantee of a minimum
number of impressions, or times that an advertisement appears in pages viewed by
users of our website. To the extent that minimum guaranteed impressions are not
met, we defer recognition of the corresponding revenues until the guaranteed
impression levels are achieved.

Allowances for doubtful accounts receivable and other recoverables

         We maintain allowances for doubtful accounts receivable and for other
recoverables for estimated losses resulting from the inability of our customers
to make contractually agreed payments. All receivables which are outstanding for
180 days or more are provided for. We also make allowances for a specific
account receivable or other recoverable if the facts and circumstances indicate
that such account receivable or other recoverable is unlikely to be collected.
For example, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Depreciation and amortization

         We depreciate our tangible assets on a straight-line basis over the
useful life of the assets, which range from three to ten years. Eligible costs
are capitalized and amortized over the estimated useful life of three years.
Maintenance expenses or costs that do not result in new features or functions
are expensed as product development costs.

Goodwill and intangible assets

         We allocate excess purchase price over the historical cost of
businesses acquired to intangible assets and goodwill based on their fair
values.

         We test the carrying balances of goodwill and intangible assets that
do not have a finite life for impairment on January 1 each year or earlier
upon the occurrence of a triggering event. The first step compares the fair
value of each reporting unit to its carrying amount, including goodwill. If
the fair value of each reporting unit exceeds its carrying amount, goodwill is
not considered to be impaired and the second step will not be required.

         If the carrying amount of a reporting unit exceeds its fair value,
the second step compares the implied fair value of goodwill to the carrying
value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with
the allocation of the assessed fair value determined in the first step to the
assets and liabilities of the reporting unit. The excess of the fair value of
the reporting unit over the amounts assigned to the assets and liablilties is
the implied fair value of goodwill. This allocation process is only performed
for purposes of evaluating goodwill impairment and does not result in an entry
to adjust the value of any assets or liabilities. An impairment loss is
recognized for any excess in the carrying value of goodwill over the implied
fair value of goodwill.

Acquisitions and Divestments

Value Communications Corporation

         On March 23, 2001, we acquired the entire outstanding common stock of
Value Communications Corporation, or ValuCom, a company engaged in selling
prepaid long-distance calling cards primarily to the Indian community in the
United States and Canada. The purchase consideration consisted of US$ 3.0
million, which was paid by us on March 23, 2001, plus a deferred consideration
(called earn-out payments) payable over a period of two years which was
contingent upon ValuCom's achieving specified earnings levels in those years.

         The transaction was accounted for by the purchase method in accordance
with APB Opinion No. 16, which resulted in creation of an initial goodwill of


                                      45
<PAGE>

US$ 3.7 million at March 23, 2001. Such goodwill increased to US$ 6.82 million
at March 31, 2002 as a result of provisions for earn-out payments to ValuCom's
former shareholders and cash-out of ValuCom options. Such goodwill further
increased to US$ 7.13 million at March 31, 2003 as a result of final earn-out
payments made to ValuCom's option holders.

         On April 8, 2004, we sold our phone card business, consisting primarily
of the "ValuCom" brand, trademarks, websites, internally built software,
customer lists and certain hardware for US$500,000 to Worldquest Networks, Inc.
("WQN"). WQN paid US$200,000 of the total consideration at closing with the
remaining US$300,000 paid in twelve monthly installments of US$25,000 commencing
May 2004. In addition, we also sold its inventory of prepaid identification
numbers ("PINS") to WQN at its carrying value on April 8, 2004, resulting in
additional consideration of US$102,424. Separately, in April 2004, WQN entered
into an advertising agreement with Rediff.com, Inc. entitling WQN to exclusive
rights to prominent online advertising space on the Rediff.com U.S.A website.
Under the terms of the advertising agreement, WQN paid Rediff US$50,000 for
twelve consecutive months commencing in May 2004 for the advertising services.
In accordance with SFAS 144. "Accounting for the Impairment or Disposal of
Long-Lived Assets", the disposal of the phone card business qualified as
discontinued operations at March 31, 2004.

India Abroad Publications, Inc.

         On April 27, 2001, we acquired substantially all the outstanding voting
shares of India Abroad Publications, Inc., or India Abroad, a New York
corporation primarily engaged in the publication of a weekly newspaper, India
Abroad.

         Pursuant to a stock purchase agreement, at the closing of the
acquisition, we paid approximately US$11.4 million to the selling shareholders
of India Abroad. Simultaneously with this acquisition, the former principal
shareholder repurchased certain assets for approximately US$1.1 million
resulting in an estimated gain of approximately US$314,000, which has been
recorded as reduction of goodwill.

         We accounted for this acquisition by the purchase method, in accordance
with APB Opinion No. 16, which resulted in the initial creation of goodwill of
approximately US$10.5 million.

Goodwill Impairment

         Our goodwill amounts arise from the acquisitions of Thinkindia, India
Abroad and ValuCom. Our business in India has been treated as a single reporting
unit, and since none of the components in India benefited from the synergies
from acquisitions in the United States, no goodwill was allocated to this
reporting unit.

         We have tested each reporting unit for impairment of goodwill annually,
or earlier upon the occurrence of a triggering event. Impairment charges
recorded are as follows:

<TABLE>
<CAPTION>

                                                             Fiscal year ended March 31,
                                                 -------------------------------------------------
                                                                  (in US$ millions)
                                                     2004                 2005              2006
                                                 -------------    -------------------   -----------
<S>                                                     <C>                  <C>                <C>
India Abroad .............................            US$--                US$--              US$--
ValuCom ..................................             1.66                   --                 --
Rediff.com, Inc. (Thinkindia) ............               --                   --                 --
                                                 -------------     ----------------     -----------
Total ....................................          US$1.66                US$--              US$--
</TABLE>


         India Abroad
         ------------

         In the fourth quarter of fiscal years 2004, 2005 and 2006, we performed
the annual impairment test for goodwill of India Abroad. Our management
determined the fair value of the business using the discounted cash flow method
in all years.

         In the fiscal years ended March 31, 2004, March 31, 2005 and March 31,
2006, the fair value of the reporting unit exceeded its carrying value
indicating that goodwill was not further impaired.

         ValuCom
         -------

                                      46
<PAGE>

         On April 8, 2004 we sold the phone card business for a consideration of
US$500,000. During the fiscal year ended March 31, 2004, we recorded an
impairment charge of US$1,661,222 for the ValuCom goodwill (included in the loss
from discontinued operations), based on the sale value of the phone card
business.

         Rediff.com, Inc. (formerly Thinkindia)
         --------------------------------------

         During fiscal 2002 due to the unfavorable market environment, including
general conditions affecting the technology industry together with the downturn
in the valuation of dot.com companies, we re-evaluated the goodwill that arose
on Rediff.com, Inc's acquisition for impairment. Since the projected cash flows
of the Thinkindia business were negative, we closed down Thinkindia's facilities
in California, terminated substantially all staff and wrote off the unamortized
goodwill balance of US$ 3,316,508.

Current Trading and Business Outlook

         We believe that the India Online market is entering a phase of
accelerated growth as revealed by indicators such as the increase in the number
of mobile subscribers, higher PC sales and the increased penetration of
broadband connections as recognized and encouraged by the TRAI. During the
fiscal year ended March 31, 2006, we believe that we maintained our market
leadership in the Indian Online space as demonstrated by the growth of our
registered user base, paid subscribers and revenues. We believe that there
continues to be an opportunity and a challenge to significantly grow our
fee-paying subscribers which currently account for less than 1% of our
registered user base. We believe the online advertising industry is in a
promising stage of development with more marketers experimenting with the medium
with significantly larger budgets. Growth in this industry is largely dependent
on the advertising industry collaborating with online providers like us to
cohesively promote the medium to leading marketers across the country.

         Our U.S. Publishing business, comprised of the Rediff India Abroad
website, our India Abroad newspaper and our India in New York newspaper,
maintained its leadership position within the Indian-American community during
the fiscal year ended March 31, 2006. Our U.S. Publishing business segment is
mainly dependent on our ability to attract advertisers in a growing market
while effectively managing costs through greater operational efficiencies
across our businesses.

         We believe the outlook for our India Online business during the fiscal
year ending March 31, 2007 will be dependent on the continued growth of online
advertising and fee-based business, which, in turn, is primarily driven by
increase in the Internet user and mobile user bases.

         Actual results may differ materially from those suggested by our
forward-looking statements due to certain risks or uncertainties associated with
our expectations with respect to, but not limited to the impact on our business
of a continued economic slowdown or a downturn in the sectors in which our
clients operate, our ability to successfully implement our strategy, our ability
to successfully integrate the business we have acquired with our business,
demand for our online and offline service offerings, changes in the Internet
marketplace, technological changes, investment income, cash flow projections and
our exposure to market risks. By their nature, certain of the market risk
disclosures are only estimates and could be materially different from what
actually occur in the future. As a result, actual future gains, losses or impact
on net interest income could materially differ from those that have been
estimated. For further discussion on forward-looking statements, see the
discussion under the "Forward-Looking Statements" section of this annual report.

Operating Results

         We sold our phone card business in April 2004. In accordance with SFAS
144, Accounting for the impairment or disposal of long-lived assets, the
disposal of our phone card business qualifies as discontinued operations at
March 31, 2004. The results of operations of the phone card business are
disclosed as discontinued operations in our consolidated statements of
operations for the fiscal years ended March 31, 2004 and March 31, 2005.

         The comparative analysis presented below relates to our continuing
operations.

Fiscal year Ended March 31, 2006 compared to Fiscal Year Ended March 31, 2005
-----------------------------------------------------------------------------

         Revenues. Total revenues for the fiscal year ended March 31, 2006
increased by 48% to US$18.7 million from US$12.6 million for the fiscal year
ended March 31, 2005. This increase was principally attributable to an increase

                                      47
<PAGE>

in revenues from our India Online business and, to a lesser degree, the increase
in revenues from our US Publishing business.

         India Online business. We recognized US$12.2 million in revenues from
our India Online business for the fiscal year ended March 31, 2006 as compared
to US$6.6 million for the fiscal year ended March 31, 2005, representing an
increase of US$5.6 million, or 86%, over the previous fiscal year. The increase
in revenue was mainly due to increases in:

     o    advertising revenues by US$4.37 million, primarily as a result of an
          increase in Internet advertising in India; and

     o    fee-based services by US$1.25 million due to an increase in revenues
          from our subscription services, mobile services and our online
          shopping marketplace. This resulted from a greater number of users
          and greater usage of these services.

         U.S. Publishing business. We recognized US$6.5 million in revenues for
the U.S. Publishing business for the fiscal year ended March 31, 2006, as
compared to US$6.1 million for the fiscal year ended March 31, 2005,
representing an increase of US$0.46 million, or 7.5%, over the previous fiscal
year. The increase in revenues was primarily due to increase in advertising
revenues from our Rediff India Abroad website.

         Cost of revenues. Cost of revenues primarily includes cost of content
for the Rediff websites, editorial costs, printing and circulation costs for the
India Abroad newspaper, e-commerce marketplace related costs and related
salaries. For the fiscal year ended March 31, 2006, cost of revenues was US$5.0
million, or 27% of total revenues, compared to US$5.1 million, or 40% of total
revenues during the previous fiscal year. The decline in cost of revenues was
primarily due to a decrease of US$0.07 million, or 2%, during fiscal 2006 in
circulation expenses for our U.S. Publishing business compared to fiscal 2005.

         We anticipate that our cost of revenues in absolute dollar terms for
our India Online business will increase during the fiscal year ended March 31,
2007 as compared to the fiscal year ended March 31, 2006, as we expect to incur
additional costs to continue to grow our business.

         Sales and marketing expenses. Sales and marketing expenses primarily
include employee compensation for sales and marketing personnel, advertising and
promotion expenses and market research costs. For the fiscal year ended March
31, 2006, sales and marketing expenses were US$3.5 million, compared to US$2.3
million for the fiscal year ended March 31, 2005, representing an increase of
US$1.2 million, or 53%, over the previous fiscal year. The increase was
attributable to an increase in advertising and publicity costs as we continued
to invest in promoting our brand and services, as well as an increase in Indian
sales and marketing costs due to an increase in staff. The increase in
advertising revenues in fiscal 2006 also led to a corresponding increase in
incentive payments to sales employees during fiscal 2006.

         We expect our sales and marketing expenses in absolute dollar terms
will increase for the fiscal year ended March 31, 2007, as compared to the
fiscal year ended March 31, 2006, as we launch more products and services,
expand the range of offerings on our websites and invest further in brand
building, advertising and personnel.

         Product development expenses. Product development costs primarily
include internet communication costs, software usage fees, software development
expenses and compensation to product development personnel. For the fiscal year
ended March 31, 2006, product development expenses were US$2.6 million compared
to US$1.8 million for the fiscal year ended March 31, 2005, representing an
increase of US$0.8 million, or 41%. The increase was primarily due to increase
in bandwidth charges by US$ 0.2 million, an increase in product development
charges by US$0.2 million and an increase in salary costs by US$0.2 million.

         We expect to continue to invest in product development to maintain our
position as a leading Internet destination for the global Indian community.
Therefore, we expect our product development expenses in absolute dollar terms
to increase in the future.

         General and administrative expenses. General and administrative costs
primarily consist of compensation for administrative personnel, fees for legal
and professional services, allowances for doubtful accounts, insurance premia,
depreciation and sundry administrative costs. For the fiscal year ended March
31, 2006, general and administrative expenses were US$6.6 million compared to

                                      48
<PAGE>

US$5.1 million for the fiscal year ended March 31, 2005, representing an
increase of US$1.5 million, or 30%. This increase was primarily due to an
increase of US$0.7 million in depreciation expense, primarily as a result of an
increase in capital expenditure during fiscal 2006, as well as an increase of
US$0.1 million in repair and maintenance costs, an increase of US$0.2 million on
account of provision for doubtful debts and an increase of US$0.3 million in
salary costs. We expect that as we continue to grow, our general and
administrative expenses will increase in the future.

         Other income (loss), net. Other income (loss), net primarily consists
of interest income and foreign exchange gain or loss. During the fiscal year
ended March 31, 2006, other income (net) was US$0.25 million compared to US$0.53
million for the fiscal year ended March 31, 2005, representing a decrease of
US$0.28 million. Interest income for the fiscal year ended March 31, 2006 was
US$1.23 million, compared to US$0.52 million for the fiscal year ended March 31,
2005, representing an increase of US$0.71 million, or 136%. The increase in
interest income was due primarily due to interest on the net proceeds from our
follow-on ADS offering in November 2005 and, to a lesser extent, higher
applicable interest rates for our Rupee-denominated deposits during the fiscal
year ended March 31, 2006 as compared to the fiscal year ended March 31, 2005.
However, in fiscal 2006 we incurred a foreign exchange loss of US$0.98 million,
compared to a foreign exchange gain of US$5,000 in fiscal 2005, arising from the
conversion of U.S. dollar amounts held by us to our functional currency for
financial reporting purposes (i.e. the Indian Rupee), due to the strengthening
of the Indian Rupee against the U.S. dollar.

         Net income (loss). As a result of the foregoing, our net income for the
fiscal year ended March 31, 2006 was US$1.2 million, compared to a net loss of
US$1.4 million for the fiscal year ended March 31, 2005.

Fiscal year Ended March 31, 2005 compared to Fiscal Year Ended March 31, 2004
-----------------------------------------------------------------------------

         Revenues. Total revenues for the fiscal year ended March 31, 2005
increased by 34% to US$12.6 million from US$9.5 million for the fiscal year
ended March 31, 2004. This increase was principally attributable to the increase
in revenues from our India Online business and to a lesser degree, the increase
in revenues from our US Publishing business.

         India Online business. We recognized US$6.6 million in revenues from
our India Online business for the fiscal year ended March 31, 2005 as compared
to US$3.6 million for the fiscal year ended March 31, 2004, representing an
increase of US$2.9 million, or 81%, over the previous fiscal year. The increase
in revenue was mainly due to increases in:

     o    advertising revenues by US$2.0 million, primarily as a result of an
          increase in Internet advertising in India; and

     o    fee-based services by US$1.0 million due to an increase in revenues
          from our subscription services, mobile SMS services and our
          e-commerce marketplace. This resulted from a greater number of users
          and greater usage of these services.

         U.S. Publishing business. We recognized US$6.1 million in revenues for
the U.S. Publishing business for the fiscal year ended March 31, 2005, as
compared to US$5.8 million for the fiscal year ended March 31, 2004,
representing an increase of US$0.3 million, or 4.5%, over the previous fiscal
year. The increase in revenues was primarily due to increase in advertising
revenues from our Rediff.com USA website.

         Cost of revenues. For the fiscal year ended March 31, 2005, cost of
revenues was US$5.1 million, or 40.5% of total revenues, compared to US$4.7
million, or 50.2% of total revenues during the previous fiscal year. This
represents an increase of US$0.4 million, or 7.9%, over the previous fiscal year
due to an increase in the cost of revenues for our India Online business by
US$0.5 million, which was partially offset by a decrease in the cost of revenues
for our US Publishing business by US$0.09 million.

         Sales and marketing expenses. For the fiscal year ended March 31, 2005,
sales and marketing expenses were US$2.3 million, compared to US$1.0 million for
the fiscal year ended March 31, 2004, representing an increase of US$1.3
million, or 140%, over the previous fiscal year. The increase was attributable
to an increase in advertising and publicity costs as we continued to invest in
promoting our brand and services, as well as an increase in Indian payroll costs
as higher advertising revenues led to higher commissions paid to our sales
employees. In addition, during fiscal 2004, we wrote back allowances no longer
required totaling US$0.7 million, which reduced total sales and marketing
expenses by a corresponding amount during fiscal 2004.


                                      49
<PAGE>

         Product development expenses. For the fiscal year ended March 31, 2005,
product development expenses were US$1.8 million compared to US$1.6 million for
the fiscal year ended March 31, 2004, representing an increase of US$0.2
million, or 14.7%. The increase was primarily due to an increase in bandwidth
charges by US$0.2 million.

         General and administrative expenses. For the fiscal year ended March
31, 2005, general and administrative expenses were US$5.1 million compared to
US$5.4 million for the fiscal year ended March 31, 2004, representing a decrease
of US$0.3 million, or 4.9%. This decrease was primarily due to a decrease of US$
0.6 million in depreciation expense, primarily as a result of certain assets
being fully depreciated.

         Other income (loss), net. During the fiscal year ended March 31, 2005,
other income (net) was US$0.5 million compared to a loss (net) of US$0.1 million
for the fiscal year ended March 31, 2004, representing an increase of US$0.6
million. Interest income for the fiscal year ended March 31, 2005 was US$0.5
million, compared to US$0.3 million for the fiscal year ended March 31, 2004,
representing an increase of US$0.2 million, or 56.4%. The increase in interest
income was due to higher applicable interest rates for our Rupee-denominated
deposits during the fiscal year ended March 31, 2005 as compared to the fiscal
year ended March 31, 2004. Foreign exchange gain for the fiscal year ended March
31, 2005 was US$5,000 as compared to a loss of US$ 0.5 million for the previous
fiscal year.

         Net loss. As a result of the foregoing, our net loss was US$1.4 million
for the fiscal year ended March 31, 2005, compared to a net loss of US$5.7
million for the fiscal year ended March 31, 2004. Of the net loss for the fiscal
year ended March 31, 2005, US$1.2 million was attributable to losses from
continuing operations, while US$0.2 million was from our discontinued
operations.

Seasonality

         Given the early stage of the development of the Internet in India, the
rapidly evolving nature of our business and our limited operating history, we
cannot accurately predict to what extent, if at all, our operations will prove
to be seasonal. However, we do experience peaks in our business because of the
festival seasons in the Indian winter months of November through February and
because of extended vacation in the Indian summer months of April through June.
India Abroad experiences its peak season during the Christmas holiday season in
the United States.

Liquidity and Capital Expenditures

         Our primary liquidity needs have been to finance our losses from
operations, acquisitions and capital expenditures. These have been funded
primarily from the private sales of equity securities, sale of ADSs and from
cash received from our operations.

         For the fiscal years ended March 31, 2004 and 2005, we incurred net
losses of US$5.7 million and US$1.4 million, respectively, and for the fiscal
year ended March 31, 2006 we earned net income of US$1.2 million. Although we
attained profitability in fiscal 2006, primarily due to increased revenues and
the realization of cost efficiencies, we may in the future incur net losses and
negative cash flows from operations, which would require us to continue to use
the proceeds from the sale of our equity securities and ADSs to fund our
operations and capital expenditures.

         As of March 31, 2006, our accounts receivable balance was US$5.4
million compared to US$ 3.1 million as of March 31, 2005, net of allowances of
US$1.8 million and US$ 1.4 million as of March 31, 2006 and 2005, respectively.
This increase was principally due to the increase in our revenues. During the
fiscal years ended March 31, 2004, 2005 and 2006, we had write-offs or provided
allowances of US$0.2 million, US$0.2 million and US$0.4 million for delinquent
trade receivables, respectively. These write-offs and allowances constituted
2.2%, 1.7% and 2.1% of total revenues, respectively in those years.



                                      50
<PAGE>

Cash Flows

<TABLE>
<CAPTION>

                                                         For the Fiscal Year Ended March 31,
                                                  -----------------------------------------------------
                                                     2004                 2005               2006
                                                  ----------------  ----------------- -----------------
Net cash (used in) generated from operating
  activities:
<S>                                                 <C>                  <C>              <C>
  - from continuing operations ...........        US$ (2,886,563)      US$   144,073    US$   1,663,403
  - from discontinued operations .........              (373,744)           (509,568)            13,737
  Total ..................................            (3,260,307)           (365,495)         1,677,140
Net cash used in investing activities ....              (561,783)         (1,424,091)        (4,584,734)
Net cash generated from financing                         73,473             302,925         45,145,582
activities ...............................
Effect of exchange rate changes on cash ..             1,004,004             (83,156)           786,291
Net (decrease)/increase  in cash and
cash equivalents .........................         US$(2,744,613)     US $(1,569,817)    US$ 43,024,279
</TABLE>

         Fiscal Year Ended March 31, 2006
         --------------------------------

         Net cash generated from continuing operations of US$1.7 million during
the fiscal year ended March 31, 2006 was principally attributable to the net
income for the year of US$1.2 million, primarily due to an increase in
advertising and fee based revenues. Non-cash items of depreciation and
amortization totaled US$1.5 million due to increased capital expenditures. This
was offset by an increase in working capital of US$1.1 million, which increase
was primarily due to an increase in accounts receivable of US$ 2.3 million which
was partially offset by an increase in accounts payable and accrued liabilities
of US$ 0.8 million and an increase in customer advances and unearned revenues of
US$ 0.5 million.

         Net cash used in investing activities during the fiscal year ended
March 31, 2006 was US$4.6 million, consisting principally of purchases of
servers and other capital equipment in connection with the expansion of our
network.

         Net cash provided by financing activities during the fiscal year ended
March 31, 2006 was US$45 million, which represented net cash proceeds from our
follow-on offering of ADSs in November 2005 and from employee stock options
exercised during the year.

         As of March 31, 2006, we had aggregate commitments for capital
expenditures of approximately US$0.11 million.

         Fiscal Year Ended March 31, 2005
         --------------------------------

         Net cash generated from continuing operations of US$ 144,000 during the
year ended March 31, 2005 was principally attributable to the reduction of our
net loss from continuing operations to US$1.2million, which included non-cash
items of depreciation and amortization of US$ 0.7 million. This was achieved
through a combination of improvement in our revenues, control over our
expenditures and better working capital management. Other significant
contributors included an increase in accounts payable and accrued liabilities of
US$ 2.1 million, an increase in unearned revenues of US$ 0.3 million, and
decrease in other assets of US$ 0.3 million. These were partially offset by an
increase in accounts receivable of US$ 1.2 million increase in prepaid expenses
and other current assets of US$ 0.7 million and increase in recoverable income
taxes of US$ 0.1 million.

         Net cash used in investing activities during the fiscal year ended
March 31, 2005 was US$ 1.4 million, consisting principally of purchases of
computers and other capital equipment in connection with the expansion of our
network which was partially offset by cash inflows from the sale of ValuCom
phone card business.

         Net cash provided by financing activities during the fiscal year ended
March 31, 2005 was US$ 303,000, which represented cash received for employee
stock options exercised during the year.

         As of March 31, 2005, we had aggregate commitments for capital
expenditures of approximately US$ 450,144.


                                      51
<PAGE>

         Fiscal Year Ended March 31, 2004
         --------------------------------

         Net cash from continuing operations used in operating activities of US$
2.9 million during the fiscal year ended March 31, 2004 was primarily
attributable to a net loss of US$ 5.7 million which included non-cash items of
depreciation and amortization of US$ 1.3 million. Other cash flows included
decreases in accounts payable and accrued liabilities of US$ 0.9 million and
increase in accounts receivable of US$ 0.5 million. This was offset by a
reduction in prepaid and other current assets of US$ 0.2 million, an increase in
unearned revenues of US$ 0.1 million due principally to higher collections
during the year and a decrease in recoverable income taxes of US$ 0.2 million
due principally to refund of taxes from Indian Tax authorities.

         Net cash used in investing activities during the fiscal year ended
March 31, 2004 was US$0.6 million, comprising principally purchases of computers
and other capital equipment in connection with the expansion of our network.

         Net cash provided by financing activities during the fiscal year ended
March 31, 2004 was US$73,000 representing cash received for employee stock
options exercised during the year.

         As of March 31, 2004, we had aggregate commitments for capital
expenditures of approximately US$4,896.

Contractual Obligations

         Our contractual obligations relate to operating leases and capital
commitment, payments for which are to be made as per the table below:

  Years ended March 31,               Operating Leases      Capital Commitments
  ---------------------               ----------------      -------------------
  2007 ............................        US$477,529            US$112,798
  2008 ............................           295,998                    --
  2009 ............................             5,503                    --
  2010 and thereafter .............                --                    --
                                      ---------------       ----------------
  Total payments ..................        US$779,040           US$ 112,798
                                      ===============       ================

Capital Expenditures

         Our principal capital expenditures are for purchases of computer
equipment, such as servers for our websites and leasehold improvements. In
fiscal 2006, 2005 and 2004, we had capital expenditures of US$4.6 million, US$
1.8 million and US$ 0.6 million, respectively.

Dividends

         We have not declared or paid any cash dividends on our equity shares
since our inception and do not expect to pay any cash dividends for the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business. For additional information, please see
the sections of this annual report entitled "Risk Factors - Risks Related to our
Business" and "Taxation".

         We believe our cash balances and liquid assets, cash generated from
future operations and our existing credit facilities will be adequate to satisfy
anticipated working capital requirements, capital expenditures and investment
commitments for the next twelve months. As business and market conditions
permit, we may from time to time, invest in or acquire complementary businesses,
products or technologies. These activities may require us to seek additional
equity or debt to fund financing such activities, which could result in
ownership dilution to existing shareholders, including holders of our ADSs.

Income Tax Matters

         As of March 31, 2006, we had net operating loss carry forwards for our
Indian operations aggregating approximately US$17.1 million, which will expire
between April 1, 2006 and March 31, 2014. We also have unabsorbed depreciation
carry forwards as of March 31, 2006 aggregating approximately US$9.3 million. If
we do not have sufficient taxable business income or if the applicable period
expires, we will lose the potential tax benefit of the relevant losses.

         As of March 31, 2006, Rediff Holdings, Inc., our U.S. subsidiary and
the holding company of our Rediff.com, Inc. and India Abroad investments, had
net operating loss carryforward of approximately US$7.7 million for federal


                                      52
<PAGE>

income tax purposes. These net operating loss carryforwards expire in years 2020
through 2026. Whether Rediff Holdings, Inc. is able to realize the future tax
benefits related to its deferred income tax asset is dependent on many factors,
including its ability to generate taxable income within the net operating loss
carry forward period. Management considered these factors and believed that a
full valuation allowance of the deferred tax asset was required for the period
presented. For the years ended March 31, 2005 and 2006, the provision for
current income taxes was US$38,000 and US$18,000, respectively.

         As of March 31, 2006, ValuCom had a net operating loss carryforward of
approximately US$3.0 million. This loss will expire in years 2021 through 2025.
Following the sale of its phone-card business to WQN in April 2004, ValuCom
currently does not engage in any business activity. Unless ValuCom is able to
generate taxable income within the aforesaid net operating loss carry forward
period, it will not be able to realize any future tax benefit. Management
considered these factors and believed that a full valuation allowance of the
deferred tax asset was required for the period presented.

Market Risks

Foreign Currency Exchange Rate Risk

         The functional currency for our Indian operations is the Indian Rupee.
We are exposed to foreign currency exchange rate fluctuations, principally
relating to the fluctuation of the U.S. dollar to Indian Rupee exchange rate. We
face foreign currency exchange risk with respect to funds held in foreign
currencies and in particular will have foreign exchange losses with respect to
these funds if there is an appreciation in the value of the Indian Rupee
compared to such foreign currency. We also face foreign currency exchange risk
from accounts payable to overseas vendors, which we partially mitigate with
receipts in foreign currency from overseas customers and balances in foreign
currency with overseas banks.

         Prior to October 2003, we held most of the proceeds from our June 2000
ADS offering in U.S. dollar denominated accounts. While we now hold a
significant portion of our cash and cash equivalents in Indian Rupee denominated
bank accounts in response to the appreciation in the value of the Indian Rupee
compared to the U.S. dollar, we still hold a portion of the net proceeds from
our November 2005 follow-on ADS offering in a U.S. dollar-denominated bank
account. The following table sets forth information about our net foreign
currency exchange (U.S. dollars) exposure as of March 31, 2006:

                                                           As of March 31, 2006
                                                           --------------------
                                                                (in thousands)

Accounts payable in U.S. dollars .............................          155
Accounts receivable in U.S. dollars, net of allowance ........          146
Cash balances held in U.S. dollars ...........................       25,589
                                                                 -----------
Net foreign currency exchange exposure .......................       25,580
                                                                 ===========

         We do not currently try to reduce our exposure to foreign currency
exchange rate fluctuations by using hedging transactions. However, we may choose
to do so in the future. We may not be able to do this successfully. Accordingly,
we may experience economic losses and negative impacts on earnings and equity as
a result of foreign currency exchange rate fluctuations. If the Indian Rupee
appreciates against the US dollars by one Rupee, the net foreign currency
exchange loss as of March 31, 2006 would be approximately US$585,000.

Interest Rate Risk

         We hold interest-bearing accounts in India as well as outside India and
fluctuations in interest rates affected our interest earnings for the fiscal
year ended March 31, 2006. These interest rates are linked to the interest rates
prevailing in India and the United States. We expect that our interest earnings
will continue to be affected in the future by fluctuations in interest rates. A
hypothetical 10% increase or decrease in the interest rates applicable to cash
deposits during such period would have affected our interest income by
approximately US$123,000.

Off-balance sheet arrangements

         As of the date of this annual report, we are not a party to any
off-balance sheet obligations or arrangements.


                                      53
<PAGE>

New accounting pronouncements

         In December 2004, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123
(revised 2004), "Share-Based Payments", or SFAS 123R. This statement
eliminates the option to apply the intrinsic value measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" to stock compensation awards issued to employees. Instead, SFAS
123R requires companies to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the award - the
requisite service period (usually the vesting period). We are required to
apply SFAS 123R, effective from the first fiscal year beginning after June 15,
2005. See Note 2(n) in the notes to our financial statements included in this
annual report.

         In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3". This
statement changes the requirements for accounting and reporting of a voluntary
change in accounting principle and changes required by an accounting
pronouncement when the specific transition provisions are absent. This
statement requires retrospective application to prior periods' financial
statements of changes in accounting principle. If it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change, this statement requires that the new accounting principle be adopted
prospectively from the earliest practicable date. SFAS No. 154 is effective
for fiscal years beginning after December 15, 2005. We do not believe that the
adoption of SFAS 154 will have a material effect on our financial position,
cash flows or results of operations.

         In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets - an amendment of FASB Statement No. 140". This
addresses the recognition and measurement of separately recognized servicing
assets and liabilities and provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. The standard also clarifies when an obligation
to service financial assets should be separately recognized as a servicing
asset or a servicing liability, requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value, if
practicable, and permits an entity with a separately recognized servicing
assets or servicing liability to choose between an amortization method and a
fair value method for subsequent measurement. SFAS 156 is effective for all
separately recognized servicing assets and liabilities acquired or issued
after the beginning of an entity's fiscal year that begins after September 15,
2006. We currently do not have any servicing assets or liabilities.

         In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109". This clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This interpretation
also provides guidance on de-recognition, classification, interest and
penalties and disclosure. This interpretation is applicable from the fiscal
year beginning after December 15, 2006. The impact, if any, resulting from the
application of this interpretation is under evaluation.


                                      54
<PAGE>

                                   MANAGEMENT

         The following table sets forth, as of August 10, 2006, the name, age
and position of each of our directors and executive officers.

        Name                                        Age    Position

        Ajit Balakrishnan(1)(2) ..............      58     Chairman and
                                                             Managing Director
        Joy Basu .............................      45     Chief Financial
                                                             Officer
        Diwan Arun Nanda(1)(2) ...............      63     Director
        Sunil N. Phatarphekar(1)(2)(3) .......      42     Director
        Pulak Prasad(1) ......................      38     Director
        Ashok Narasimhan(1)(3) ...............      59     Director
        Sridar Iyengar(1)(3) .................      59     Director
        Rashesh C. Shah(1) (3)* ..............      43     Director

         (1)  Member of the Board of Directors
         (2)  Member of the Compensation Committee
         (3)  Member of the Audit Committee

         *    Appointed to the Board of Directors on April 26, 2006

         Ajit Balakrishnan is founder, Chairman and Managing Director of the
Company. Mr. Balakrishnan is also a Director of Rediffusion-Dentsu, Young &
Rubicam Private Limited, where he has served since March 1993, and a Director
of Rediffusion Holdings Private Limited (earlier called Rediffusion
Advertising Private Limited), Klaas Equipment Private Limited, India Abroad
Publications, Inc., India In New York, Inc., India Abroad Publications
(Canada), Inc., Value Communications Corporation, Rediff.Com, Inc., Rediff
Holdings, Inc., AB Technologies LLC. U.S.A, Ajit Balakrishnan Estates &
Securities Private Limited and Quintrol Technologies Private Limited. Mr.
Balakrishnan holds a Bachelors degree in Physics from Kerala University and a
Post Graduate Diploma in Management from the Indian Institute of Management,
Kolkata. Mr. Balakrishnan's initial term of appointment as Managing Director
of the Company expired on August 24, 2003. At our Annual General Meeting held
on September 29, 2003, our shareholders re-appointed Mr. Balakrishnan for an
additional five-year term as Managing Director with effect from August 24,
2003.

         Joy Basu has been our Chief Financial Officer since September 2003,
having joined us in April 2003. From October 2002 to April 2003, he served as
Chief Financial Officer of Sahara India Media Communication Limited. From
April 2000 to September 2002, he served with the Sterlite Group of Companies,
as Chief Financial Officer of Sterlite Optical Technologies-Limited from April
2000 to April 2002 and as Vice President, Corporate Finance from April 2002 to
September 2002. From 1993 to 2000 he served with the RPG Group of companies,
where the last position he held was General Manager - Strategic Planning. From
1986 to 1993 he served with the Tata Group in various capacities. Mr. Basu
hold a Bachelors degree in Commerce from St. Xavier's College, Calcutta
University. He is also a member of the Institute of Chartered Accountants of
India and has attended the Senior Executive Course at the Manchester Business
School, U.K on a British Chevening Scholarship.

         Diwan Arun Nanda has been a director of the Company since its
incorporation in December 1995. Mr. Nanda is also a Director of Rediffusion
Dentsu, Young & Rubicam Pvt. Ltd. Klaas Equipment Private Limited, Wunderman
India Private Limited, Arion Horse Co. Pvt. Ltd., Rediffusion Holdings Private
Limited, Rediffusion Dentsu, Young & Rubicam Pvt Ltd Srilanka, Everest Brand
Solutions Pvt. Ltd., Showdiff Worldwide Pvt. Ltd., Clariant Chemicals (India)
Limited, Eveready Industries India Ltd and Kingfisher Airlines Limited. Mr.
Nanda is also a Trustee of the Harikrishna Mandir Trust, Pune. Mr. Nanda holds
a Bachelor's Degree in Commerce from Loyola College, Chennai University, and a
Post Graduate Diploma in Management from the Indian Institute of Management,
Ahmedabad.

         Sunil N. Phatarphekar has been a director of the Company since
February 1998. Mr. Phatarphekar is the proprietor of SNP Legal (Advocates), a
Mumbai law firm. Mr. Phatarphekar earlier was a partner of Doijode,
Phatarphekar & Associates, a Mumbai law firm. After obtaining his Bachelor's
Degree in Commerce from Jai Hind College, Bombay University, and a Bachelor's
Degree in Law from Government Law College, Bombay University, he joined
Crawford Bayley & Company, a Mumbai law firm. Thereafter, he was a partner at


                                      55
<PAGE>

two Mumbai law firms, Mahimtura & Co. and Shah Desai Doijode & Phatarphekar.
Mr. Phatarphekar is also a director of several other Indian companies.

         Pulak Prasad has been director of the Company since 1999. He is also
a Managing Director of Warburg Pincus India Pvt. Ltd and Warburg, Pincus LLC,
a position he has held since 2000. He is a Director of Bharti Televentures
Ltd., Venture Infoteck Global Pvt. Ltd., Spar Retail Solutions Pvt. Ltd.,
Arksoft Enterprise Pvt. Ltd., Radhakrishna Foodland Carriers Pvt. Ltd.,
Radhakrishna Foodland Pvt.Ltd., WNS (Holdings) Ltd., Sintex Industries Ltd.,
Aryan Coal Benedications Pvt. Ltd, Aryan Energy Pvt Ltd, Aryan Ispat & Power
Pvt Ltd, Kartikay Coal Washeries Pvt Ltd, Aryan Clean Coal Technologies Pvt
Ltd and Writers & Publishers Ltd. Mr. Prasad holds a Bachelor's Degree in
Engineering from the Indian Institute of Technology, New Delhi and a Post
Graduate Diploma in Management from the Indian Institute of Management,
Ahmedabad.

         Ashok Narasimhan has been a director of the Company since June 25,
2002. He is currently Chairman, CEO and Co-Founder of July Systems &
Technologies Pvt. Ltd. He is also limited partner, advisor, and board member for
a number of U.S. venture capital funds. He is also a director on the board of
Tarang Software Technologies Pvt Limited, Genie Technologies India Pvt. Limited,
Avendus Advisors Private Limited, Atma Investments and Resources Pvt. Limited.
He was earlier founder of Prio, Inc., where he served as Chairman and CEO from
early 1996 until its merger with InfoSpace. He subsequently served on the board
of Infospace. Prior to this, he served as Head of Worldwide Marketing and
Business Development of VeriFone, a leader in automated electronic payment
transactions. He holds a Bachelors Degree in Physics from Madras University and
a Post-Graduate Diploma in Management from the Indian Institute of Management,
Kolkata.

         Sridar A. Iyengar has been a director of the Company since September
2004. Mr. Iyengar is currently the President of TiE (The Indus Entrepreneurs)
Inc. He also serves on the Board of Infosys Technologies Limited, a
NASDAQ-listed company, as an Independent Director and serves on its Audit
Committee. He is on the Board of Progeon Limited, Rediff Holdings, Inc., Mango
Analytics Inc, OnMobile Asia Pacific Pvt Ltd and ICICI Bank Ltd, which is an
NYSE-listed company, and also advises many early-stage technology companies in
the United States and India. He is also a member of the boards of the American
India Foundation and the Foundation for Democratic Reforms in India. From 1968
until his retirement in March 2002, he was employed by KPMG, retiring as the
Partner-in-Charge of KPMG's Emerging Business Practice. He worked as a partner
in all three of KPMG's regions - Europe, America and Asia Pacific - as well as
in all four of KPMG's functional disciplines - assurance, tax, consulting and
financial advisory services. He was Chairman and CEO of KPMG's India operations
between 1997 and 2000 and during that period was a member of the Executive Board
of KPMG's Asia Pacific practice. Prior to that, he headed up the International
Services practice in the West Coast of USA. On his return from India in 2000 he
was asked to lead a major effort of KPMG focused on delivering audit and
advisory services to early stage companies. He also served as a member of the
Audit Strategy group of KPMG LLP. He is a Fellow of the Institute of Chartered
Accountants in England and Wales, holds a Bachelor's Degree in Commerce (Honors)
from the University of Calcutta and has attended the Executive Education course
at Stanford University.

         Rashesh C. Shah has been a director of Company since April 26, 2006.
Mr. Shah is currently the CEO of Edelweiss Capital Limited. Edelweiss Capital
is a leading financial services company based in Mumbai, India, whose
businesses include investment banking, securities broking and investment
management. He also serves on the boards of several other Indian companies and
has more than 18 years experience in the capital markets sector. Mr. Shah
holds a Master in Business Administration degree from the Indian Institute of
Management, Ahmedabad, and a Bachelor's degree in Science from the University
of Bombay. He also holds a diploma in International Trade from the Indian
Institute of Foreign Trade, New Delhi. Prior to his joining Edelweiss Capital
Limited, Mr. Shah was the Head of Investment and Research at Prime Securities
Limited.

Board Composition

         On March 16, 2000, we amended our Articles of Association. Our Amended
Articles of Association set the minimum number of directors at three and the
maximum number of directors at seven. We currently have seven directors. Our
Articles of Association provide as follows:

     o    Ajit Balakrishnan, Diwan Arun Nanda and Rediffusion Holdings Private
          Limited (earlier called Rediffusion Advertising Private Limited),
          are entitled to appoint and have appointed Mr. Balakrishnan as
          Director on the Board and Chairman of Rediff.com India Ltd. so long
          as they hold not less than 10.0% of the issued, subscribed and paid
          up capital of Rediff.com India Ltd. Mr. Balakrishnan serves an
          indefinite term and is not required to retire by rotation.


                                      56
<PAGE>

     o    The remaining directors on the Board of Directors are non-permanent
          directors, and we have a system of cumulative voting for the
          remaining directors, the appointments being made once in three year.
          These directors may be reappointed at the annual general meeting of
          the shareholders. Mr. Diwan Arun Nanda and Mr. Sunil Phatarphekar
          retired by rotation and were re-elected by the shareholders at our
          annual general meeting held on September 21, 2005. Mr. Pulak Prasad
          and Mr. Ashok Narasimhan will retire by rotation at our next Annual
          General Meeting of shareholders, which is scheduled for September
          29, 2006.

         As of the date of this annual report, our Board has determined that
the following members qualify as independent directors: Sunil N. Phatarphekar;
Ashok Narasimhan; Sridar A. Iyengar; and Rashesh C. Shah.

Code of Ethics

         Effective February 15, 2004, we adopted codes of ethics for all of our
employees and for all of our directors and senior officers in accordance with
the provisions of the Sarbanes-Oxley Act of 2002.

         On July 19, 2005 we adopted amendments to the code of ethics for our
officers. As amended, the code for officers no longer requires each officer to
execute an annual acknowledgment of their continued understanding of the code.
However, each officer is still required to acknowledge that he or she has
received, read, understood and agrees to comply with the code. A new provision
was also added that requires each of our Chief Executive Officer, Chief
Financial Officer, senior financial officers, principal accounting officers and
such other persons performing similar functions to ensure that full, fair,
accurate, timely and understandable disclosures are made in compliance with all
applicable laws and regulations in all our public communications (including in
reports and documents that we file with or submit to the SEC).

         On August 19, 2005 we adopted amendments to the code of ethics for our
directors. As amended, the code for directors no longer requires each director
to execute an annual acknowledgment of their continued understanding of the
code. However, each director is still required to acknowledge that he or she has
received, read, understood and agrees to comply with the code. In addition, the
following amendments to the code for directors were adopted:

     o    Revision of section regarding conflicts of interest in order to
          clarify what types of situations can result in a conflict of
          interest between Rediff.com and a director. Directors are also
          required to disclose any actual or potential conflict of interest to
          our Board of Directors. The code also clarified that ownership of an
          interest in a company that competes with or does business with the
          Company will not be considered a conflict of interest if: (i) it is
          an indirect ownership interest through mutual funds or similar
          non-discretionary, undirected arrangements; or (ii) is through the
          holding of shares of such company with such shares representing 5%
          or less of such company's outstanding shares and it does not
          otherwise constitute a controlling interest in such company.

     o    Inclusion of a section that discusses when a director may avail of a
          corporate business opportunity and that requires a director who
          learns of such a corporate business opportunity and who wishes to
          participate in it should disclose the opportunity to our Board of
          Directors.

     o    Inclusion of a section that expressly requires directors to
          safeguard and properly use our assets and resources.

     o    Inclusion of a section that expressly requires directors to maintain
          the confidentiality of information regarding Rediff.com.

     o    Inclusion of a section that requires directors to deal fairly with
          the our customers, suppliers, competitors and employees and never to
          take unfair advantage of others through manipulation, concealment,
          abuse of privileged information, misrepresentation of material facts
          or any other unfair dealing practice.

     o    Directors are also required to comply with our policy of ensuring
          that full, fair, accurate, timely and understandable disclosures are
          made in compliance with all applicable laws and regulations in all
          our public communications (including in reports and documents that
          we file with or submit to the SEC).

     o    Directors are prohibited from buying or selling our securities when
          in possession of material non-public information and from passing
          such information on to someone who may buy or sell our securities
          (tipping). The prohibition applies to our securities and to the

                                      57
<PAGE>

          securities of other companies if a director, in the course of
          performing his duties as a director of Rediff.com, learns material
          non-public information about such other companies, such as our
          customers or suppliers.

     o    Suspected violations of the code for directors must be reported to
          the Chairman of the Board of Directors. Directors who violate the
          code may be subject to sanctions, up to and including the Board's
          seeking removal of the director, where permitted by applicable law.

     o    Clarification of the waiver provision by expressly specifying that
          any waiver of the code for directors must be approved by the Board
          of Directors and publicly disclosed as required by law or
          regulation.

         We will provide a copy of the codes of ethics for our directors,
officers and employees to any person without charge, upon a written request sent
to our principal executive office.

Audit Committee

         The audit committee of the Board of Directors reviews, acts on and
reports to the Board of Directors with respect to various auditing and
accounting matters, including the recommendation of our independent auditors,
the scope of the annual audits, fees to be paid to the independent auditors, the
performance of our independent auditors and our accounting practices.

         As of the date of this annual report, our audit committee is comprised
of the following members, all of whom are independent directors: Sridar A.
Iyengar; Sunil N. Phatarphekar; Ashok Narasimhan; and Rashesh C. Shah.

Audit Committee Financial Expert

         Mr. Sridar A. Iyengar has been designated the independent audit
committee financial expert. Prior to his appointment as a member of our Board of
Directors, Mr. Iyengar was a partner at KPMG, retiring in March 2002 as
Partner-in-Charge of KPMG's Emerging Business Practice.

Compensation Committee

         The Compensation Committee of the Board of Directors administers our
stock option plans. The members of the Compensation Committee are Ajit
Balakrishnan, Diwan Arun Nanda and Sunil N. Phatarphekar.

NASDAQ Corporate Governance Requirements

         In general, corporate governance principles for Indian companies whose
shares are not traded on any Indian stock exchange are set forth in the
Companies Act. Corporate governance principles under provisions of Indian law
may differ in significant ways from corporate governance standards for U.S.
NASDAQ-listed companies. Under the latest amendment to the NASD Marketplace Rule
4350(a)(1), foreign private issuers such as ourselves are permitted to follow
certain home country corporate governance practices in lieu of certain of the
requirements of Rule 4350. Under the amendment, foreign private issuers must
disclose alternative home country practices they follow.

         The following are the requirements of Rule 4350 we do not follow and
the home country practices we follow in lieu of these Rule 4350 requirements.
Our independent Indian counsel has submitted to the NASDAQ a letter, dated June
27, 2005, certifying that our corporate governance practices as described below
are not prohibited by and are consistent with Indian law.

         (i)      Rule 4350(b)(2) and Rule 4350 (b)(3) - Distribution of
                  quarterly and interim reports

         In lieu of the requirements of Rule 4350(b)(2) and Rule 4350(b)(3), we
follow Indian law, under which companies whose shares are not traded on any
Indian stock exchange are not required to prepare and/or distribute quarterly
and interim reports to shareholders. However, we have in the past regularly
released copies of press releases and conference call transcripts relating to
our quarterly results of operations by posting them on our website. Further, we
furnish press releases relating to our quarterly results of operations with the
SEC on Form 6-K and we currently intend to continue to do so.

         (ii)     Rule 4350(c)(1) - Independent Directors


                                      58
<PAGE>

         In lieu of the requirements of Rule 4350(c)(1), we follow the Companies
Act, which does not require that a majority of the Board of Directors of Indian
companies be comprised of independent directors. Nevertheless, as of the date of
this annual report, our Board has determined that four out of its seven members
are independent.

         (iii)    Rule 4350(c)(2) - Executive sessions of Independent Directors

         In lieu of the requirements of Rule 4350(c)(2), we follow the Companies
Act, which does not require independent directors to hold regularly scheduled
meetings at which only such independent directors are present (i.e., executive
sessions). Under the Companies Act, our Board of Directors as a whole is
responsible for monitoring our business, although it is permitted to delegate
specific responsibilities to designated directors or to non-director executive
officers.

         (iv)     Rule 4350(c)(3) - Compensation of Officers

         In lieu of the requirements of Rule 4350(c)(3), we follow Indian law,
which requires companies to form a Compensation Committee in case of
remuneration payable to specified managerial personnel by companies having no
profits or inadequate profits. In such a case, a "Remuneration Committee" is
required to be constituted for approving the payment of remuneration to certain
specified "managerial personnel" as defined in the Companies Act. Such
Remuneration Committee, if constituted for this purpose, should consist of at
least three non-executive independent directors including nominee directors, if
any. For purposes of the Companies Act "managerial personnel" include the
company's managing director, whole time director and manager, each as defined
under the Companies Act.

         We do not pay and currently do not intend to pay any remuneration to
any of our managerial personnel as defined in the Companies Act. As such, we are
not required to constitute a Remuneration Committee under the Companies Act.
However our Board of Directors has formed a compensation committee, which
currently comprises of three directors including one independent director, for
the sole purpose of administering our stock option plans and other compensation
plans as may be approved by our shareholders from time to time.

         Three of our directors, Mr. Ajit Balakrishnan, Mr. Sridar Iyengar and
Mr. Sunil Phatarphekar, receive remuneration from our wholly-owned U.S.
subsidiary Rediff Holdings, Inc., in their capacity as directors of that
subsidiary. There is no restriction under Indian law on paying remuneration to
directors of an Indian company having no profits or inadequate profits who are,
at the same time, also directors of a non-Indian subsidiary.

         (v)      Rule 4350(c)(4) - Nomination of Directors

         In lieu of the requirements of Rule 4350(c)(4), we follow the
requirements of the Companies Act pursuant to which directors are required to be
appointed by shareholders at their general meeting . In addition, under the
Companies Act, our board can make appointments, subject to any regulations in a
company's articles of association, to fill any casual vacancies caused if the
office of a director is vacated before his term of office has expired. Any
person so appointed shall hold office only up to the date up to which the
director in whose place he is appointed would have held office. Our board also
has the power to appoint additional directors who shall hold office only up to
the date of our next annual general meeting of the company. The Companies Act
also allows our board to appoint an alternate director to act for a director
during his absence for a period of not less than three months from the state in
which the board meetings are ordinarily held. Finally, our Articles of
Association states that Ajit Balakrishnan, Diwan Arun Nanda and Rediffusion
Holdings Private Limited (earlier called Rediffusion Advertising Private
Limited), are entitled to appoint and have appointed Mr. Balakrishnan as
Director on the Board and Chairman of Rediff.com India Ltd. so long as they hold
not less than 10.0% of the issued, subscribed and paid up capital of Rediff.com
India Ltd. Mr. Balakrishnan serves an indefinite term and is not required to
retire by rotation.

         (vi)     Rule 4350(f) - Quorum

         In lieu of the requirements of Rule 4350(f), we follow the Companies
Act, under which a quorum for purposes of a meeting of the holders of our common
stock is considered present as long as five of our members are present in
person.

         (vii)    Rule 4350(g) - Solicitation of Proxies


                                      59
<PAGE>

         As a foreign private issuer, we are not subject to Regulations 14A and
14C under the Securities and Exchange Act of 1934, as amended. As such, in lieu
of the requirements of Rule 4350(g), we follow the requirements of the Companies
Act. Section 176 of the Companies Act prohibits a company incorporated
thereunder, such as us, from soliciting proxies. Because we are prohibited from
soliciting proxies under Indian law, we will not meet the proxy solicitation
requirement of Rule 4350(g). However, in accordance with Indian law, we give
written notices of all our shareholder meetings (containing a statement that a
shareholder is entitled to appoint a proxy, or, where that is allowed, one or
more proxies, to attend and vote instead of himself, and that a proxy need not
be a member) to all our shareholders and we also furnish such notices with the
SEC under Form 6-K.

         Other than as noted above, we intend to comply with all other
applicable NASDAQ corporate governance standards.

Employees

         As of March 31, 2006, we had 274 employees and full-time consultants.
Of such employees, 95 are in our sales and marketing teams, 80 are creative and
editorial, 34 are dedicated to technology and product development, 25 are
dedicated to e-commerce 12 are dedicated to production and circulation and 28
are administrative. We believe that our relationship with our employees is good.
The table sets forth the distribution of our employees by geographic location of
our facilities and by department:

                                                      Other
                                                      Indian     United
Department                                 Mumbai     cities     States   Total
----------                                 ------     ------     ------   -----
Creative ...............................      8          5          -       13
Editorial ..............................     50          3         14       67
Production .............................      -          -          5        5
Circulation ............................      -          -          7        7
Sales and Marketing ....................     66         18         11       95
Technology and Product Development .....     32          -          2       34
E-Commerce .............................     24          1          -       25
Administration and others ..............     19          -          9       28
                                          -------     ------     -----   -----
Total ..................................    199         27         48      274
                                          =======     ======     =====   =====

Compensation

         Our Articles of Association provide that each of our directors may
receive an attendance fee for every Board and Committee meeting, provided that
no director shall be entitled to an attendance fee in excess of Rs. 2,000 per
meeting. In fiscal year 2006, we did not pay any fees to our non-employee
directors. Mr. Ajit Balakrishnan, who is our Managing Director, does not receive
any additional compensation for his service on our Board of Directors. Directors
are reimbursed for travel and out-of-pocket expenses in connection with their
attendance at Board and Committee meetings. Directors of our U.S. subsidiaries
receive compensation for their service on the boards of these subsidiaries.

         The following table sets forth details regarding:

         (i)  compensation paid to executive officers and directors of the
              Company during the fiscal year ended March 31, 2006; and

         (ii) Equity Shares arising out of warrants granted to such officers and
              directors under the Employee Stock Option Plan, or ESOP, during
              the fiscal year ended March 31, 2006.


                                      60
<PAGE>

<TABLE>
<CAPTION>

                                                  Equity Shares arising
                                                     out of warrants
                                                    granted during the
                                                   year under the 1999
                            Salary and other       ESOP, 1999 ASOP and       Grant price
Name                          compensation          the 2002 ADR ESOP           (US$)          Expiration date

<S>                                <C>                  <C>                  <C>               <C>
Ajit Balakrishnan                US$100,000(1)          -                     -                 -

Joy Basu                                83,027          -                     -                 -

Sridar A. Iyengar                    25,000(1)          -                     -                 -

Sunil Phatarphekar*                   9,166(1)          -                     -                 -

         * Remuneration for only part of the fiscal year ended March 31, 2006.
</TABLE>

         (1)  Each of Mr. Balakrishnan, Mr. Iyengar and Mr. Phatarphekar receive
              a salary from Rediff Holdings, Inc. our wholly-owned
              U.S.-incorporated subsidiary, in their capacity as directors of
              Rediff Holdings, Inc. None of them receive any salary from
              Rediff.com India Limited.

Employee Benefit Plans

Employee Stock Option Plan 1999

         Our 1999 Employee Stock Option Plan (the "1999 ESOP"), allows for the
grant to our employees of warrants to purchase our Equity Shares. Each warrant
granted gives the employee the right to purchase a specified number of our
Equity Shares under the 1999 ESOP. The 1999 ESOP was approved by our Board of
Directors in August 1998 and by our shareholders in February 1999. A total of
280,000 Equity Shares, after giving effect to our 2 for 5 reverse share split
effective as of May 3, 2000, were reserved for issuance under the 1999 ESOP. As
of March 31, 2000, we had granted, under the 1999 ESOP, warrants, equivalent to
the right to purchase 232,300 Equity Shares, after giving effect to our 2 for 5
reverse share split effective as of May 3, 2000, at a weighted average exercise
price of US$ 6.53 (Rs. 285) per share. From April 1, 2001 to March 31, 2002, we
had granted additional warrants equivalent to the right to purchase 19,000
Equity Shares at a weighted average exercise price of US$ 2.25 (Rs. 108) per
share under the 1999 ESOP. During the same period, there was a forfeiture of
warrants, equivalent to 13,450 Equity Shares from the employees who had left the
Company. During the fiscal year ended March 31, 2003, warrants equivalent to
12,900 Equity Shares were forfeited due to the resignation of employees. During
the fiscal year ended March 31, 2004, we granted additional warrants equivalent
to the right to purchase 7,500 Equity Shares and during the same period,
warrants equivalent to 22,975 Equity Shares were forfeited due to resignation of
employees. During the fiscal year ended March 31, 2005, we granted additional
warrants equivalent to the right to purchase 30,000 Equity Shares and during the
same period, warrants equivalent to 7,750 Equity Shares were forfeited due to
resignation of employees.

         Unless otherwise determined by the Board of Directors, the warrants
granted under the 1999 ESOP vest at a rate of 25% on each successive anniversary
of the grant date, until fully vested. Equity shares acquired pursuant to the
1999 ESOP are subject to a four-year lock-up period from the date of grant of
the respective warrants. In the case of termination of the employee, the
employee shall have the right to exercise only the warrants vested up to the
time of termination, and the unvested warrants shall lapse. In the case of
death, incapacitation, or retirement at the normal retirement age of an
employee, all warrants granted to him or her shall vest in full either on the
employee or his or her legal heirs, as appropriate. The period during which
vested warrants may be exercised expires five years after the date of grant.

         On January 16, 2006, our Compensation Committee terminated the 1999
ESOP, without prejudice to the interest of participants in the 1999 ESOP who
have already been granted options under it. As of March 31, 2006, warrants
equivalent to the right to purchase 46,000 Equity Shares remained outstanding
under the 1999 ESOP.

Associate Stock Option Plan 1999

         We have an Associate Stock Option Plan 1999 (the "1999 ASOP"), which
allows for the grant to our associates, such as key vendors, software
developers, retainers, consultants, and all other persons or legal entities not
eligible to participate in the 1999 ESOP, of warrants to purchase our Equity
Shares. Each warrant granted gives the associate the right to purchase a
specified number of our Equity Shares under the 1999 ASOP. The 1999 ASOP was
approved by our Board of Directors in April 1999 and by our shareholders in
February 1999. A total of 198,000 Equity Shares, after giving effect to our 2
for 5 reverse share split effective as of May 3, 2000, were reserved for
issuance under the 1999 ASOP. As of March 31, 2000, we had granted warrants
under the 1999 ASOP, equivalent to the right to purchase 73,600 Equity Shares,
after giving effect to our 2 for 5 reverse share split effective as of May 3,
2000, at a weighted average exercise price of US$11.73 per share. From April 1,
2001 to March 31, 2002 there was a fresh issuance of warrants equivalent to 1000
Equity Shares to Associates at the rate of US$2.25 under the 1999 ASOP. During


                                      61
<PAGE>

the same period, there was a forfeiture of warrants, equivalent to 5,750 Equity
Shares from the associates who had terminated their association with Rediff.
Warrants equivalent to 28,000 Equity Shares were issued on January 1, 2003 at an
exercise price of US$2.26 to three of our Directors. During the fiscal year
ended March 31, 2005 we granted warrants equivalent to the right to purchase
6,000 Equity Shares at a weighted average exercise price of US$15.11 per share.

         The warrants granted under the 1999 ASOP vest at rates set forth on
each warrant. Equity shares acquired pursuant to the 1999 ASOP are subject to a
four-year lock-up period from the date of grant of the respective warrants. In
the case of termination of the relationship, the associate shall have the right
to exercise only the warrants vested up to the time of termination, and the
unvested warrants shall lapse. In the case of death of the associate, all
warrants granted to him or her shall vest in full on his or her legal heirs, as
appropriate. The period during which vested warrants may be exercised expires
five years after the date of grant.

         On January 16, 2006, our Compensation Committee terminated the 1999
ASOP, without prejudice to the interest of participants in the 1999 ASOP who
have already been granted options under it. As of March 31, 2006, warrants
equivalent to the right to purchase 35,000 Equity Shares remained outstanding
under the 1999 ASOP.

ValuCom Stock Option Plans

         On April 1, 2000, ValuCom adopted the Value Communications Corporation
2000 Stock Incentive Compensation Plan as a means of encouraging stock ownership
by its employees, officers, directors and advisors. Under terms of this plan,
non-qualified options to purchase up to 300,000 shares of common stock of
ValuCom were reserved for issuance, were generally granted at not less than fair
market value, became exercisable as established by ValuCom (generally over four
years) and generally expire seven years from the date of grant.

         On the date of ValuCom's acquisition, we contractually agreed to
replace the existing employee stock options of ValuCom employees with our
options once we obtained approvals necessary to establish a stock option plan in
the U.S.

         As of March 31, 2002, under the terms of an agreement with the
ValuCom employees holding options to purchase shares of ValuCom, we agreed to
pay such employees the cash value of their vested options as of that date. The
value of the options was calculated pursuant to a formula included in the
stock purchase agreement. An amount of US$133,000 was recorded as of that date
and included in goodwill. During the fiscal year ended March 31, 2003, an
aggregate of US$176,299 was paid to employees and US$43,299 was recorded as a
compensation expense. We no longer have any obligations under the ValuCom
option plan.

2002 Stock Option Plan

         In January 2002 our Board of Directors approved the 2002 Stock Option
Plan ("2002 plan") which provides for the grant of incentive stock options and
non-statutory stock options to our employees. All options under these plans are
exercisable for our ADSs. Necessary approvals from the regulators in India have
been obtained. During the fiscal year ended March 31, 2004, we made appropriate
filings with the SEC prior to the first exercise date of the options granted
under the 2002 plan. Unless terminated sooner, this plan will terminate
automatically in January 2012. A total of 280,000 of our Equity Shares were
reserved for issuance under the 2002 plan. As of March 31, 2003, we had granted
under the 2002 stock option plan, warrants equivalent to the right to purchase
220,500 Equity Shares at an exercise price of Rs.109. During the fiscal year
ended March 31, 2004, we granted warrants equivalent to the right to purchase
116,000 Equity Shares at a weighted average exercise price of US$7.75. During
the same period, warrants equivalent to 32,225 Equity Shares were exercised and
warrants equivalent to 69,250 Equity Shares were forfeited. During the fiscal
year ended March 31, 2005, we granted warrants equivalent to the right to
purchase 10,500 Equity Shares at a weighted average exercise price of US$10.98.
During the same period, warrants equivalent to 52,625 Equity Shares were
exercised and warrants equivalent to 4,875 Equity Shares were forfeited. During
the fiscal year ended March 31, 2006, we did not grant any awards under the 2002
Plan. During the same period, warrants equivalent to 94,400 Equity Shares were
exercised and warrants equivalent to 5,875 Equity Shares were forfeited.

         Unless otherwise determined by the Board of Directors, the warrants
granted under the 2002 plan vest at a rate of 25% on each successive anniversary
of the grant date, until fully vested. The options granted under the 2002 ADR
plan vest at the rates set forth in every award.


                                      62
<PAGE>

2004 Stock Option Plan

         In June 2004, our Board of Directors approved the 2004 Stock Option
Plan ("2004 plan"), which provides for the grant of stock options to our
employees. All options under the 2004 plan are exercisable for our ADSs. We
have elected to account for the 2004 plan using the intrinsic value method as
set forth in APB Opinion No. 25. Unless terminated sooner, the 2004 plan will
terminate automatically in January 2014. A total of 358,000 Equity Shares are
currently reserved for issuance pursuant to the 2004 plan. On June 20, 2006,
we granted 92,500 ADS-linked stock options (equivalent to 46,250 Equity
Shares) under the 2004 plan at an exercise price of US$11.35 per ADR, which
represented a 10% discount to the closing market price of our ADSs on June 19,
2006. These options will vest at a rate of 25% on each successive anniversary
of the grant date (June 20, 2006), until fully vested. During the fiscal year
ended March 31, 2006, we granted warrants equivalent to the right to purchase
5,100 Equity Shares at a weighted average exercise price of Rs.655 (US$14.73).
During the same period, warrants equivalent to 51,910 Equity Shares were
exercised and warrants equivalent to 47,125 Equity Shares were forfeited.

         Under the terms of the 2004 plan, our Board of Directors or a committee
or a sub-committee of the board will determine and authorize the grant of
options to eligible employees. These options will vest at the rates set forth in
each award. Each option grant carries with it the right to purchase a specified
number of our ADSs at the exercise price during the exercise period, which
expires ten years from the date of grant. The exercise price is determined by
our Board of Directors (or a committee or a sub-committee of the board) and
shall be no more than 110% of the fair market value and no less than 50% of the
fair market value of our ADSs on the date of the grant.

         We have obtained the approvals for the implementation of the 2004 plan.
We also made the necessary filings with the SEC prior to the first exercise date
of the options granted under the 2004 plan.

2006 Employee Stock Option Plan

         Our 2006 Employee Stock Option Plan (the "ESOP 2006"), allows for the
grant to our employees of options to purchase our Equity Shares. Each option
granted gives the employee the right to purchase a specified number of our
Equity Shares under the ESOP 2006. The ESOP 2006 was adopted and approved by
our Compensation Committee on June 20, 2006 in accordance with the approval
granted by our shareholders on March 31, 2006. A total of 150,000 Equity
Shares were approved for issuance under the ESOP 2006. As of the date of this
annual report, we have granted 58,000 options under the ESOP 2006, equivalent
to the right to purchase 58,000 Equity Shares at an exercise price of Rs.10
(US$0.22) per share. These options will vest at a rate of 25% on each
successive anniversary of the grant date (June 20, 2006), until fully vested.

         Equity Shares acquired upon the exercise of options granted pursuant to
the terms of the ESOP 2006 are not subject to any lock-ups. In the case of
termination or resignation of the employee, the employee shall have the right to
exercise only the options vested up to the time of termination or resignation,
and the unvested warrants options shall lapse. In the case of the death of an
employee, all options granted to him or her shall vest in full on his or her
legal heirs. The period during which vested options may be exercised expires ten
years after the date of grant.

Future Option Plans

         On March 31, 2006, our shareholders approved resolutions authorizing
our Board and/or our Compensation Committee (a) to create and adopt one or more
ADR-linked stock option plans and to issue such number of ADR-linked stock
options convertible up to a maximum of 335,000 Equity Shares under such plans,
(b) to create and adopt one or more ordinary stock option plans and to issue
such number of ordinary stock options convertible up to a maximum of 335,000
Equity Shares under such plans and (c) to create and adopt one or more associate
stock option plans and to issue up to a maximum of 50,000 Equity Shares pursuant
to such plans.

         As of the date of this annual report, our Compensation Committee has
adopted and approved an ordinary stock option plan, the ESOP 2006. Of the
150,000 Equity Shares approved for issuance under the ESOP 2006, we have granted
options equivalent to the right to purchase 58,000 Equity Shares. See "- 2006
Employee Stock Option Plan".

Retirement Plans

         Gratuity. We provide for gratuity, an unfunded defined benefit
retirement plan covering its eligible employees in India based on third-party
actuarial valuations. This plan provides for a lump-sum payment to be made to
vested employees at retirement or termination of employment in an amount


                                      63
<PAGE>

equivalent to 15 days' salary, payable for each completed year of service. These
gratuity benefits vest upon an employee's completion of five years of service.

         Net periodic gratuity cost for the fiscal years ended March 31, 2004,
2005 and 2006 and the unfunded benefit liability as of March 31, 2006 are as
follows:

<TABLE>
<CAPTION>

                                                                 Fiscal years ended March 31,
                                                        -------------------------------------------------
                                                        2004               2005               2006
                                                        ------------  ----------------   ----------------
<S>                                                        <C>               <C>                 <C>
Change in benefit obligation
----------------------------
Benefit obligation at the beginning of the
  year .....................................             US$ 66,439        US$ 88,021          US$ 96,524
Actuarial (gain) loss ......................                 (3,042)           (6,229)              5,618
Service cost ...............................                 14,875            16,923              21,479
Interest cost ..............................                  5,350             5,675               7,210
Benefits paid ..............................                 (2,724)           (7,647)            (22,942)
Effect of exchange rate changes ............                  7,123              (219)             (2,210)
                                                        ------------   ----------------   ----------------
Benefit obligation at the end of the year ..             US$ 88,021        US$ 96,524         US$ 105,679
Unrecognized net actuarial loss (gain) .....                  2,229             8,517               2,976
                                                        ------------   ----------------   ----------------
Accrued liability ..........................             US$ 90,250       US$ 105,041         US$ 108,655
                                                        ============   ================   ================


         The assumptions used in accounting for gratuity in the fiscal years
ended March 31, 2004, March 31, 2005 and March 31, 2006 were as follows:

                                                                  Fiscal years ended March 31,
                                                        --------------------------------------------------
                                                        2004                2005                2006
                                                        -----------     ---------------    ----------------
Discount rate ..............................                     7%                  8%                  8%

Rate of increase in compensation ...........         8% for first 2        8% for first        8% for first
                                                        years and5%         year and 6%        2 years and 5%
                                                         thereafter          thereafter        thereafter
</TABLE>


         Provident Fund. Employees based in India and we each contribute at the
rate of 12% of salaries to a provident fund maintained by the Government of
India for the benefit of such employees. The provident fund is a defined
contribution plan. Accordingly, we expense such contributions to operations as
incurred. The amount contributed by us to the provident fund, in the aggregate,
was US$113,222 for the fiscal year ended March 31, 2006.

         Compensated Absences. We provide for the cost of vacation days earned
by our employees based on the number of unutilized vacation days as of each
balance sheet date.


                                      64
<PAGE>

                           RELATED PARTY TRANSACTIONS

         Six of our largest shareholders beneficially hold an aggregate of
approximately 61% of our Equity Share capital. As a result, such shareholders,
if they were to act collectively, could exercise control or significantly
influence most matters requiring shareholder approval, including significant
corporate transactions.

Advertising Revenues

         During the fiscal years ended March 31, 2006, 2005 and 2004, we
received US$43,299, US$53,991 and US$11,537, respectively, in advertising
revenues from Rediffusion-Dentsu, Young & Rubicam Limited, a company in which
Mr. Ajit Balakrishnan and Mr. Diwan Arun Nanda are shareholders and directors
and in which Mr. Sunil Phatar Phekar is a director.


                                      65
<PAGE>

                                EXCHANGE CONTROLS

Restrictions on Conversion of Rupees

         There are restrictions on the conversion of Indian Rupees into U.S.
dollars. Before February 29, 1992, the Reserve Bank of India determined the
official value of the Rupee in relation to a weighted basket of currencies of
India's major trading partners. In the February 1992 budget, a new dual exchange
rate mechanism was introduced by allowing conversion of 60% of the foreign
exchange received on trade or current account at a market-determined rate and
the remaining 40% at the official rate. All importers were, however, required to
buy foreign exchange at the market rate except for certain specified priority
imports. In March 1993, the exchange rate was unified and allowed to float. In
February 1994 and again in August 1994, the Reserve Bank of India announced
relaxation in payment restrictions in the case of a number of transactions.
Since August 1994, the Government of India has substantially complied with its
obligations owed to the International Monetary Fund, under which India is
committed to refrain from using exchange restrictions on current international
transactions as an instrument in managing the balance of payments. Effective
July 1995, the process of current account convertibility was advanced by
relaxing restrictions on foreign exchange for various purposes, such as foreign
travel and medical treatment.

         In December 1999, the Indian Parliament passed the FEMA, which
replaced the earlier Foreign Exchange Regulation Act, 1973 ("FERA"). This
legislation indicates a major shift in the policy of the government with
regard to foreign exchange management in India. While FERA was aimed at the
conservation of foreign exchange and its utilization for the economic
development of the country, the objective of FEMA is to facilitate external
trade and promote the orderly development and maintenance of the foreign
exchange market in India.

         FEMA permits most transactions involving foreign exchange except those
prohibited or restricted by the Reserve Bank of India. FEMA has eased
restrictions on current account transactions. However the Reserve Bank of India
continues to exercise control over capital account transactions (i.e., those
which alter the assets or liabilities, including contingent liabilities, of
persons). The Reserve Bank of India has issued regulations under FEMA to
regulate the various kinds of capital account transactions, including certain
aspects of the purchase and issuance of shares of Indian companies.

Restrictions on Sale of the Equity Shares Underlying the ADSs and for
Repatriation of Sale Proceeds

         ADSs issued by Indian companies to non-residents have free
transferability outside India. However, under Indian regulations and practice, a
dealer authorized by the Reserve Bank of India must be notified of the sale of
equity shares underlying ADSs by a non-resident of India to a resident of India,
as well as of any renunciation by a non-resident in favor of a resident of India
of the right to subscribe to such equity shares granted pursuant to a rights
offering, provided the price for sale of such equity shares is in accordance
with Reserve Bank of India pricing guidelines. If not, prior approval of the
Reserve Bank of India is required for any such transfer. Under current Indian
law, Equity Shares may only be deposited into our depositary facility in
exchange for ADSs, under certain circumstances and the number of ADSs that can
be outstanding at any time is limited as follows: after any offering of ADSs,
Equity Shares can be deposited for issuance of ADSs only to the extent that (a)
holders have surrendered ADSs and withdrawn Equity Shares from the ADS facility
and (b) such holders sold such Equity Shares through SEBI registered stock
brokers in a domestic Indian stock market. As our Equity Shares are not listed
on any Indian stock exchange, if you elect to surrender your ADSs and receive
Equity Shares, you would be unable to redeposit outstanding Equity Shares with
our Depositary and receive ADSs.

         Investors who seek to sell in India to resident Indians any Equity
Shares withdrawn from the depositary facility and to convert the Rupee proceeds
from such sale into foreign currency and repatriate such foreign currency from
India will be subject to pricing guidelines specified by the Reserve Bank of
India for such sales and subject to certain reporting requirements. Prior
approval of the Reserve Bank of India will be required in the event the price
for any such sale does not comply with such pricing guidelines.

An Active or Liquid Market for Our ADSs Is Not Assured

         Active, liquid trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders for investors.
Liquidity of a securities market is often a function of the volume of the shares

                                      66
<PAGE>

that are publicly held by unrelated parties. Although ADS owners are entitled to
withdraw the Equity Shares underlying the ADSs from the depository facility at
any time, subject to certain legal restrictions, there is no public market for
our Equity Shares in India or elsewhere. Under current Indian law, Equity Shares
may only be deposited into our depositary facility in exchange for ADSs, under
certain circumstances and the number of ADSs that can be outstanding at any time
is limited as follows: after any offering of ADSs, Equity Shares can be
deposited for issuance of ADSs only to the extent that (a) holders have
surrendered ADSs and withdrawn Equity Shares from the ADS facility and (b) such
holders sold such Equity Shares through SEBI-registered stock brokers in a
domestic Indian stock market. Since our Equity Shares are unlisted, if you elect
to surrender your ADSs and receive Equity Shares, you may be unable to
re-deposit of our Equity Shares on an automatic basis under existing laws.

Restriction on Debt Issues

         Indian corporates are permitted to raise debt in various forms
(commonly referred to as "External Commercial Borrowing" or "ECB") from
internationally recognized sources such as international banks, international
capital markets, multilateral financial institutions, export credit agents,
suppliers of equipment, foreign, collaborators and foreign equity holders,
subject to the regulations laid down by the Reserve Bank of India in this
regard. These regulations govern all the important aspects of ECBs including
amount and maturity, all-in cost ceilings (including rate of interest and fees
and expenses payable in foreign currency) end-use, security and
prepayment/redemption.

         Indian borrowers are allowed to raise up to US$20 million, in the event
the minimum average maturity of the ECB is three years, and up to US$500
million, in the event the minimum average maturity is five years, without
Reserve Bank of India approval (the "automatic route") so long as, inter alia,
the following conditions are met.

     o    "All-in cost" ceiling does not exceed 200 basis points over the
          six-month LIBOR for the respective currency of borrowing, in the
          case of ECBs with a minimum average maturity of 3 to 5 years, and
          350 basis points over the six-month LIBOR for the respective
          currency of borrowing, in the case of ECBs with a minimum average
          maturity being more than five years.

     o    Proceeds from ECBs can be only raised for permitted purposes, such
          as capital investments, overseas direct investment in a joint
          venture or a wholly-owned foreign subsidiary. ECB proceeds cannot be
          used for on-lending, for investing in capital markets and real
          estate, for working capital and general corporate purposes or for
          refinancing existing domestic loans.

     o    ECBs may be secured by assets of the borrower subject to compliance
          with the relevant regulations issued by the Reserve Bank of India.

     o    Pre-payment or redemption of ECBs prior to maturity in amounts up to
          US$200 million is permitted without prior Reserve Bank of India
          approval, provided that any such prepayment and redemption can only
          be undertaken if the same complies with the stipulated average
          maturity period of three years, in the case an ECB of up to US$20
          million, and five years, in the case of an ECB of up to US$500
          million.

         All proposals for the issuance of ECBs that do not fall into the
parameters set out above will need the approval of the Reserve Bank of India.

         The maximum amount of ECB that may be raised by an eligible borrower
under the automatic route is US$500 million, or its equivalent, during a single
financial year. The primary responsibility to ensure that ECB raised/utilized
are in conformity with the RBI instructions is that of the concerned borrower
and any contravention of the RBI guidelines will be viewed seriously and may
invite penal action.

         The Ministry of Finance, through the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism)
Scheme 1993 (the "Scheme"), has allowed Indian corporates to issue Foreign
Currency Convertible Bonds ("FCCBs"). Unless otherwise expressly provided in the
Scheme, the issuance and terms of FCCBs are subject to the same conditions and
restrictions set forth above for ECBs. All proposals for the issuance of FCCBs
that do not fall under the automatic approval route set out in the Scheme and
that do not meet the conditions and restrictions set forth for ECBs will need
the approval of the Reserve Bank of India.


                                      67
<PAGE>

Sponsored ADR Schemes

         From November 23, 2002, the Reserve Bank of India has permitted
existing shareholders of Indian companies to sell their shares through the
issuance of ADRs against the block of existing shares of the Indian company,
subject to the following conditions:

     o    The facility to sell the shares would be available pari passu to all
          categories of shareholders.

     o    The sponsoring company whose shareholders propose to divest existing
          shares in the overseas market through issue of ADRs will give an
          option to all its shareholders indicating the number of shares to be
          divested and mechanism how the price will be determined under the
          ADR norms. If the shares offered for divestment are more than the
          pre-specified number to be divested, shares would be accepted from
          the existing shareholders in proportion to their existing
          shareholdings.

     o    The proposal for divestment of the shares would have to be approved
          by a special resolution of the Indian company.

     o    The proceeds of the ADR issue raised abroad shall be repatriated
          into India within a period of one month from the closure of the
          issue. However, the proceeds of the ADR issue can also be retained
          abroad to meet the future foreign exchange requirements of the
          company and by a recent notification this facility has been extended
          indefinitely till further notice.

     o    The issue related expenses in relation to public issue of ADRs under
          this scheme would be subject to a ceiling of 7% of the issue size in
          the case of public issues and 2% of the issue size in case of
          private placements. The issue related expenses would include
          underwriting commissions, lead manager charges, legal expenses and
          reimbursable expenses. The issue expenses shall be passed onto the
          shareholders participating in the sponsored issue on a pro rata
          basis.


                                      68
<PAGE>


                                 TRADING MARKET

General

         There is no public market for our Equity Shares in India, the United
States or any other market. Our ADSs evidenced by ADRs have been traded in the
United States, initially on the NASDAQ National Market (now the NASDAQ Global
Market), under the ticker symbol "REDF" since June 14, 2000, when they were
issued by our depositary, Citibank, N.A., pursuant to a Deposit Agreement.
Beginning on June 24, 2002 our ADSs have been trading on the NASDAQ Capital
Market (formerly the NASDAQ Small Cap Market) under the same ticker symbol. Each
ADS represents one-half of one Equity Share.

         The number of outstanding Equity Shares as of March 31, 2006, was
14,539,600. We have been informed by our depository that as of March 31, 2006,
there were approximately 34 record holders of ADRs evidencing 8,778,800 ADSs
(representing 4,389,400 Equity Shares) in the United States.

         The tables below set forth high and low trading prices for our ADSs on
the NASDAQ National Market (now the NASDAQ Global Market) until June 24, 2002,
on the NASDAQ Capital Market from June 24, 2002 onwards. We have received
approval to have our ADSs listed and traded on the NASDAQ Global Market, and we
expect trading on the NASDAQ Global Market to begin by the end of calendar 2006.

Annual and Quarterly high-low price history:

<TABLE>
<CAPTION>

                                                                          Price Per ADS
                                                                        -----------------
                                                                        (in U.S. dollars)

                                                                   High                     Low
                                                                   ----                     ---
<S>                                                                 <C>                    <C>
Fiscal year ended March 31, 2002 ....................               4.95                   0.45
Fiscal year ended March 31, 2003 ....................               4.78                   0.21
Fiscal year ended March 31, 2004 ....................              13.87                   2.76
Fiscal year ended March 31, 2005 ....................              15.47                   5.25
  First Quarter (April 2004 to June 2004) ...........              15.47                   6.35
  Second Quarter (July 2004 to September 2004) ......               8.43                   5.25
  Third Quarter (October 2004 to December 2004) .....              10.77                   7.28
  Fourth Quarter (January 2005 to March 2005) .......               8.90                   5.52
Fiscal year ended March 31, 2006 ....................              33.75                   6.07
  First Quarter (April 2005 to June 30, 2005) .......               8.80                   6.07
  Second Quarter (July 2005 to September 2005) ......              17.92                   7.20
  Third Quarter (October 2005 to December 2005) .....              22.12                  13.50
  Fourth Quarter (January 2006 to March 2006) .......              33.75                  14.70
Fiscal year ending March 31, 2007 ...................              25.00                  11.16
  First Quarter (April 2006 to June 2006) ...........              25.00                  11.22
  Second Quarter (July 2006 to September 26, 2006) ..              16.72                  11.16


Monthly high-low price history for previous six months:
                                                                          Price Per ADS
                                                                        -----------------
                                                                        (in U.S. dollars)

Previous six months                                                High                     Low
-------------------                                                ----                     ---
March 2006 ..........................................              27.11                  20.19
April 2006 ..........................................              23.12                  18.60
May 2006 ............................................              25.00                  14.36
June 2006 ...........................................              16.13                  11.22
July 2006 ...........................................              15.32                  11.16
August 2006 .........................................              16.72                  12.68
September 2006 (until September 26, 2006) ...........              16.72                  14.21
</TABLE>



                                      69
<PAGE>

              RESTRICTION ON FOREIGN OWNERSHIP OF INDIAN SECURITIES

         Prior to June 1, 2000, foreign investment in Indian securities,
including the acquisition, sale and transfer of securities in Indian companies,
was regulated by the FERA. As of June 1, 2000, foreign investment in and
divestment from Indian securities have been regulated by the provisions of the
FEMA, the notifications and regulations issued by the Reserve Bank of India
thereunder, and the rules made by the Ministry of Finance of the Government of
India. A summary of the regulatory environment for foreign investment in India
is provided below.

ADR Guidelines

         Subject to the fulfillment of certain conditions, Indian companies
issuing ADSs are no longer required to obtain approval of the Ministry of
Finance or the Reserve Bank of India under the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism)
Scheme, 1993, as amended from time to time, or the 1993 Scheme. Although we will
not require approval of either the Ministry of Finance or the Reserve Bank of
India, we are required to furnish a quarterly return to the Reserve Bank of
India and the Ministry of Finance within 15 days of the close of each calendar
quarter.

         The 1993 Scheme is distinct from other policies described below
relating to investments in Indian companies by foreign investors. The issuance
of ADSs pursuant to the 1993 Scheme also affords to holders of ADSs the benefits
of Sections 115AC and 115ACA of the Income-tax Act, 1961 for purposes of the
application of Indian tax.

Foreign Direct Investment

         Currently, subject to certain exceptions, foreign direct investment and
investment by individuals of Indian nationality or origin residing outside
India, or non-resident Indians, including investment in the ADSs, does not
require the prior approval of the Government of India, or the Reserve Bank of
India, although a declaration in the prescribed form, detailing the foreign
investment must be filed with the Reserve Bank of India once the foreign
investment is made in the Indian company. The Government of India has indicated
that in all cases the Reserve Bank of India would continue to be the primary
agency for the purposes of monitoring and regulating foreign investment. The
foregoing description applies only to an issuance of shares by, and not to a
transfer of shares of, Indian companies. Transfer of shares of an Indian company
by a non-resident Indian can be undertaken without having to obtain prior
approval from the Reserve Bank of India by making an application with an
authorized foreign exchange dealer, provided conditions specified in the FEMA
are fulfilled. Otherwise, such transfers would require prior approval from
Reserve Bank of India.

         On February 10, 2006, the Government of India announced that it would
allow, subject to sectoral ceilings on foreign direct investments, transfers of
shares from residents to non-residents to be undertaken via the automatic route,
including transfers involving shares in financial services companies. However,
in cases where the Takeover Code (as discussed below) applies, such transfers
require the approval of the Reserve Bank, SEBI and the Insurance Regulatory and
Development Authority.

Portfolio Investment by Non-Resident Indians

         A variety of methods for investing in shares of Indian companies are
available to non-resident Indians. Subject to certain terms and conditions,
these methods allow non-resident Indians to make portfolio investments in shares
and other securities of Indian companies on a basis not generally available to
other foreign investors. In addition to portfolio investments in Indian
companies, non-resident Indians may also make foreign direct investments in
Indian companies pursuant to the foreign direct investment route discussed
above.

Portfolio Investment by Foreign Institutional Investors

         In September 1992, the Government of India issued guidelines that
enable foreign institutional investors, including institutions such as pension
funds, investment trusts, asset management companies, nominee companies and
incorporated/institutional portfolio managers referred to as Foreign
Institutional Investors, or FIIs, to make portfolio investments in all
securities of listed and unlisted companies in India. Investments by registered
Foreign Institutional Investors or Non-Resident Indians made through a stock
exchange are known as Portfolio Investments. Foreign investors wishing to invest
and trade in Indian securities in India under these guidelines are required to
register with the SEBI. Foreign investors are not necessarily required to
register with the SEBI as Foreign Institutional Investors and may invest in


                                      70
<PAGE>

securities of Indian companies pursuant to the Foreign Direct Investment route
discussed above.

         Foreign institutional investors are required to comply with the
provisions of the Securities and Exchange Board of India (Foreign Institutional
Investors) Regulations, 1995, or Foreign Institutional Investor Regulations. A
registered FII may buy, subject to the ownership restrictions discussed below,
and sell freely securities issued by any Indian company, realize capital gains
on investments made through the initial amount invested in India, subscribe to
or renounce rights offerings for shares, appoint a domestic custodian for
custody of investments made and repatriate the capital, capital gains,
dividends, income received by way of interest and any compensation received
towards sale or renunciation of rights offerings of shares. An FII may not hold
more than 10% of the total issued capital of a company in its own name, a
corporate/individual sub-account of the FII may not hold more than 5% of the
total issued capital of a company and a broad based sub-account of the FII may
not hold more than 10% of the total issued capital of a company. The total
holding of all FIIs in a company is subject to a cap of 24% of the total paid-up
capital of a company, which can be increased to the relevant statutory
cap/ceiling in respect of the said company with the passing of a special
resolution by the shareholders of the company in a general meeting.

         Pursuant to recent amendments to the FII Regulations, FIIs are now
permitted to purchase shares and debentures, subject the FII limits, of an
Indian company through either:

     o    a public offer, where the price of the shares to be issued is not
          less than the price at which the shares are issued to the residents;
          or

     o    by way of a private placement, where the price is not less than the
          price according to the terms of the relevant guidelines or the
          guidelines issued by the former Controller of Capital Issues.

         Registered FIIs are generally subject to tax under Section 115AD of the
Income Tax Act of 1961. There is uncertainty under Indian law as to the tax
regime applicable to foreign institutional investors that hold and trade ADSs.
As such, FIIs are urged to consult with their Indian legal and tax advisors
before making an investment in ADSs issued by an Indian company.

         In addition to making portfolio investments in Indian companies,
foreign institutional investors may make foreign direct investments in Indian
companies pursuant to the foreign direct investment route discussed above.

Takeover and Insider Trading Regulations

         Under the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997, as amended, or Takeover
Code, upon the acquisition of more than 5% of the outstanding shares or voting
rights of a listed public Indian company, a purchaser is required to notify the
company, and the company and the purchaser are required to notify all the stock
exchanges on which the shares of such company are listed. Upon the acquisition
of 15% or more of such shares or voting rights or a change in control of the
company, the purchaser is required to make an open offer to the other
shareholders offering to purchase at least 20% of all the outstanding shares of
the company at a minimum offer price as determined pursuant to the Takeover
Code. Upon conversion of ADSs into equity shares, an ADS holder will be subject
to the Takeover Code; provided the Indian company is listed in India. Similarly,
appropriate disclosures would have to be made under the SEBI (Prohibition of
Insider Trading), Regulations, 1992, or Insider Trading Regulations, if the
equity shares of the Indian company are listed on a recognized stock exchange in
India. Please note that since our Equity Shares are unlisted in India, the
provisions of the Takeover Code and the Insider Trading Regulations will not be
applicable.

Qualified Institutional Placement under the DIP Guidelines

         In order to make Indian markets more competitive and efficient, the
Government of India has introduced an additional mode for listed companies to
raise funds from domestic market in the form of "Qualified Institutional
Placement", or QIP. Key features of the QIP program are as follows:

     o    Issuers.  A company whose equity shares are listed on an Indian stock
          exchange with nationwide trading terminals and which is in
          compliance with the prescribed requirements of minimum public
          shareholding in its listing agreement will be eligible to raise
          funds in the domestic market by placing securities with Qualified
          Institutional Buyers, or QIBs.


                                      71
<PAGE>

         QIBs are defined as:

          o    Public financial institution as defined in Section 4A of the
               Companies Act;
          o    Scheduled commercial banks;
          o    Mutual funds;
          o    FIIs registered with SEBI;
          o    Multilateral and bilateral development financial institutions;
          o    Venture capital funds registered with SEBI;
          o    Foreign venture capital investors registered with SEBI;
          o    State industrial development corporations;
          o    Insurance companies registered with the Insurance Regulatory
               and Development Authority;
          o    Provident funds with minimum corpus of Rs.250 million;
          o    Pension funds with minimum corpus of Rs.250 million.

     o    Securities:  Securities which can be issued through QIP program are
          equity shares or any securities, other than warrants, which are
          convertible into or exchangeable with equity shares (hereinafter
          referred to as "specified securities"). A security which is
          convertible into or exchangeable with equity shares at a later date,
          may be converted or exchanged into equity shares at any time after
          allotment of security but not later than sixty months from the date
          of allotment. The specified securities shall be made fully paid up
          at the time of allotment.

     o    Investors/Allottees:  The specified securities can be issued only to
          QIBs, as defined above. Such QIBs shall not be promoters or related
          to promoters of the issuer, either directly or indirectly. Each
          placement of the specified securities issued through QIP program
          shall be on a private placement basis, in compliance with the
          requirements of the Companies Act and the DIP Guidelines. A minimum
          of 10% of the securities in each placement shall be allotted to
          mutual funds.

     o    Issue Size:  The aggregate funds that can be raised through the QIP
          program in one financial year shall not exceed five times of the net
          worth of the issuer as of the end of its previous financial year.

     o    Placement Document:  The issuer shall prepare a placement document
          containing all the relevant and material disclosures. There will be
          no pre-issue filing of the placement document with SEBI. The
          placement document will be placed on the websites of the relevant
          Indian stock exchanges and of the issuer, with appropriate
          disclaimer to the effect that the placement is meant only for QIBs
          on a private placement basis and is not an offer to the public.

     o    Pricing:  The floor price of the specified securities shall be
          determined on a basis similar to that for Global Depository Receipt
          or Foreign Currency Convertible Bonds issues and shall be subject to
          adjustment in case of corporate actions such as stock splits, rights
          issue, bonus issue etc.

         Please note that because our Equity Shares are not listed on any Indian
stock exchange, we are not eligible to participate in the QIP program.

Restrictions on Conversion of Rupees

         There are restrictions on the conversion of Rupees into U.S. dollars.
Before February 29, 1992, the Reserve Bank of India determined the official
value of the Rupee in relation to a weighted basket of currencies of India's
major trading partners. In the February 1992 budget, a new dual exchange rate
mechanism was introduced by allowing conversion of 60% of the foreign exchange
received on trade or current account at a market-determined rate and the
remaining 40% at the official rate. All importers were, however, required to
buy foreign exchange at the market rate except for certain specified priority
imports. In March 1993, the exchange rate was unified and allowed to float. In
February 1994 and again in August 1994, the Reserve Bank of India announced
relaxation in payment restrictions in the case of a number of transactions.
Since August 1994, the Government of India has substantially complied with its
obligations owed to the IMF, under which India is committed to refrain from
using exchange restrictions on current international transactions as an
instrument in managing the balance of payments. Effective July 1995, the
process of current account convertibility was advanced by relaxing
restrictions on foreign exchange for various purposes, such as foreign travel
and medical treatment.

         In December 1999, the Indian parliament passed the FEMA, which became
effective on June 1, 2000, replacing the earlier Foreign Exchange Regulation
Act, 1973, or FERA. This new legislation indicates a


                                      72
<PAGE>

major shift in the policy of the government with regard to foreign exchange
management in India. While FERA was aimed at the conservation of foreign
exchange and its utilization for the economic development of the country, the
objective of FEMA is to facilitate external trade and promote the orderly
development and maintenance of the foreign exchange market in India.

         FEMA permits most transactions involving foreign exchange except those
prohibited or restricted by the Reserve Bank of India. FEMA has eased
restrictions on current account transactions. However the Reserve Bank of India
continues to exercise control over capital account transactions (i.e., those
which alter the assets or liabilities, including contingent liabilities, of
persons). The Reserve Bank of India has issued regulations under FEMA to
regulate the various kinds of capital account transactions, including certain
aspects of the purchase and issuance of shares of Indian companies.



                                      73
<PAGE>

                             PRINCIPAL SHAREHOLDERS

         The following table provides information relating to the beneficial
ownership of our equity shares for:

     o    each of the executive officers named in the summary compensation
          table and each of our directors;

     o    all of our directors and executive officers as a group; and

     o    each person or group of affiliated persons who is known by us to
          beneficially own 5.0% or more of our Equity Shares.

<TABLE>
<CAPTION>
                                 Shares Beneficially Owned    Shares Beneficially Owned As   Shares Beneficially Owned As
                                   As of August 10, 2006            of June 9, 2005                 of May 6, 2004
                                 -------------------------    ----------------------------   ----------------------------
                                               Percent of                     Percent of                     Percent of
                                  Number of   total Equity    Number of      total Equity     Number of     total Equity
    Name and Address of            Equity        Shares         Equity          Shares          Equity         Shares
      Beneficial Owner           Shares held   outstanding   Shares held     outstanding     Shares held     outstanding
------------------------------   -----------  -------------  ------------    -------------   ------------   -------------
<C>                                <C>                 <C>      <C>                    <C>      <C>                  <C>
Officers and Directors
Ajit Balakrishnan (1)(1A)
(1B) (1C) .......................  3,463,982           24%      3,463,982              27%      3,463,982            27%

Diwan Arun Nanda (1)  ...........  3,444,742           24%      3,444,742              27%      3,444,742            27%

Pulak Prasad (2)

c/o Warburg, Pincus &
Co.466 Lexington Avenue,
New York, NY 10017 ..............  2,008,000           14%      2,008,000              16%      2,008,000            16%


All Directors and Officers
as a Group

(5 persons) .....................  6,716,722           46%      6,716,722              52%      8,916,722            70%

5% Shareholders .................

Rediffusion Holdings
Private Limited(1)

Ready Money Terrace, 167,
Dr. Annie Besant RoadWorli,
Mumbai, 400 018, India ..........  2,200,002           15%      2,200,002              17%      2,200,002            17%

Draper-India International
c/o Multiconsult Ltd. Les
Jamalacs, Vieux Conseil
Street, Port Louis,
Mauritius .......................  2,200,000           15%      2,200,000              17%      2,200,000            17%

Queenswood Investments Ltd

C/O Multiconsult Limited,
Les Jamalacs, Vieux Conseil
StreetPort Louis, Mauritius......  2,008,000           14%      2,008,000              16%      2,008,000            16%
</TABLE>

------------------
Notes:

(1)      Includes 2,200,002 equity shares held by Rediffusion Holdings Private
         Limited earlier called Rediffusion Advertising Private Limited, of
         which Ajit Balakrishnan is a 50.0% shareholder and Director and Diwan
         Arun Nanda is a 50.0% shareholder and Director.

(1A)     Includes 144,540 equity shares held by Quintrol Technologies Private
         Limited of which Ajit Balakrishnan is a director as well as a 99.9%
         stockholder.

(1B)     Includes 5,300 ADSs of the Company held by Mr. Ajit Balakrishnan.



                                      74
<PAGE>

(1C)     Includes 33,200 ADSs of the Company held by A B Technologies, LLC a New
         York limited liability company, with respect to which Mr. Balakrishnan
         holds a position as the Managing Member as well as 99.9% stockholder.

(2)      Includes 2,008,000 equity shares held by Queenswood Investments
         Limited. Fifty percent (50%) of the outstanding equity of Queenswood
         Investments Limited is held by Warburg, Pincus Equity Partners, L.P.
         (including two affiliated partnerships) ("WPEP") and fifty percent
         (50%) of the outstanding equity of Queenswood Investments Limited is
         held by Warburg, Pincus Ventures International, L.P. ("WPVI"). Warburg
         Pincus Partners LLC ("WPP LLC"), a subsidiary of Warburg Pincus & Co.
         ("WP"), is the sole general partner of WPEP and WPVI. WPEP and WPVI are
         managed by Warburg Pincus LLC ("WP LLC"). Pulak Prasad is a Managing
         Director and Member of WP LLC. All shares indicated as held by Mr.
         Prasad are included because of his affiliation with the Warburg Pincus
         entities. Mr. Prasad disclaims beneficial ownership of all shares held
         by the Warburg Pincus entities.

         Our ADSs are currently listed on the NASDAQ Capital Market and each ADS
         is represented by one-half of one Equity Share of par value of Rs. 5
         per share. We have received approval to list our ADSs on the NASDAQ
         Global Market, and we expect our ADSs to begin trading on the NASDAQ
         Global Market by the end of calendar 2006.

         Our ADSs are registered pursuant to Section 12(g) of the Securities
         Act. We have been informed by our depository that as of March 31, 2006
         8,778,800 ADSs were held by approximately 34 record holders of ADRs in
         the United States.

In addition to the above, the following directors and former directors have
also been granted stock options as follows:

         ASOP Plan 1999:

         Abhay Havaldar (resigned on January 25, 2005) - 16,000 Equity Shares
         granted on January 1, 2003 at an exercise price of Rs. 109.42 per share

         Sunil N. Phatarphekar - 6,000 Equity Shares granted on January 1, 2003
         at an exercise price of Rs. 109.42 per share

         Ashok Narasimhan - 6,000 Equity Shares granted on January 1, 2003 at an
         exercise price of Rs. 109.42 per share

         Sridar Iyengar - 6,000 Equity Shares granted on September 28, 2004 at
         an exercise price of Rs. 658.92 per share

         None of the directors have exercised their options till date. The
         period during which these options may be exercised expires 5 years
         after the date of grant.



                                      75
<PAGE>


                                    TAXATION

Indian Tax

         The following discussion of Indian tax consequences for investors in
ADSs and Equity Shares received upon redemption of ADSs who are not resident in
India, whether of Indian origin or not, is based on the current provisions of
the Indian Income Tax Act, 1961, including the special tax regime for ADSs
contained in Section 115AC, as amended, and certain regulations implementing the
Section 115AC regime. The Indian Income Tax Act is amended every year by the
Finance Act of the relevant year. Some or all of the tax consequences of the
Section 115AC and other relevant provisions may be amended or modified by future
amendments to the Indian Income Tax Act. Furthermore, please note that the tax
rates described in this section are only those set forth in the Indian Income
Tax Act read together with the Finance Act, 2006 to the extent these provisions
are effective. In the event there is any double taxation avoidance agreement
between two states and an investor is a resident of either of the states, then
to the extent the provisions of the double taxation avoidance agreement are more
favorable to the investor, under the Indian Income Tax Act, the provisions of
the double taxation avoidance agreement would prevail.

         The following summary is not intended to constitute a complete analysis
of the tax consequences under Indian law of the acquisition, ownership and sale
of our ADSs and our Equity Shares by non-resident investors. Potential investors
should, therefore, consult their own tax advisers on the tax consequences of
such acquisition, ownership and sale, including specifically the tax
consequences under Indian law, the law of the jurisdiction of their residence,
any tax treaty between India and their country of residence, and in particular
the application of the regulations implementing the Section 115AC regime.

Residence

         For purposes of the Income Tax Act, an individual is a resident of
India during any fiscal year, if he (i) is in India in that year for 182 days or
more or (ii) having within the four years preceding that year been in India for
a period or periods amounting in all to 365 days or more, is in India for period
or periods amounting in all to 60 days or more in that year. The period of 60
days is substituted by 182 days in case of Indian citizen or person of Indian
origin who being resident outside India comes on a visit to India during the
financial year or an Indian citizen who leaves India as a member of the crew of
an Indian ship or for the purposes of employment outside India. A company is
resident in India in any fiscal year if it is an Indian company or the control
and management of its affairs is situated wholly in India in that year. A firm
or other association of persons is resident in India except where the control
and the management of its affairs are situated wholly outside India.

Taxation of Distributions

         Dividend distributed by a domestic company to shareholders will not be
subject to tax in the hands of the shareholders. Consequently, withholding tax
on dividends paid to shareholders does not apply. However, if dividends are
declared, we are required to pay as tax 14.025%, including applicable surcharge
and Education Cess, of the total dividend declared.

Taxation on Sale of ADSs

         Any transfer of ADSs outside India by a non-resident investor to
another non-resident investor does not give rise to Indian capital gains tax.

Taxation on Redemption of ADSs

         Though there is no specific provision exempting the redemption of ADSs,
it can be inferred from the provisions of section 47(x) of the Indian Income Tax
Act that the acquisition of underlying equity shares upon a redemption of ADSs
by a non-resident investor should not give rise to a taxable event for Indian
tax purposes.

         In terms of Article 8(3) of the Issue of Foreign Currency Convertible
Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993,
(Scheme) issued by the Central Government, conversion of Foreign Currency
Convertible Bonds (including ADSs) into equity shares will not give rise to any
capital gains liable to tax in India.


                                      76
<PAGE>

         Since the exemption is provided under the Scheme and not under the
Income Tax Act, 1961, it is not certain whether Indian tax authorities would
grant the exemption. Moreover, Article 7(3) of the Scheme clarifies that the
cost of acquisition of the underlying shares acquired through the redemption of
ADRs, shall be determined as the price of ordinary shares of the issuing company
prevailing on the Stock Exchange on the date of the advice or redemption.
Therefore, the tax authorities may contend that since the Scheme does not
provide the methodology for calculating the capital gains on sale of underlying
shares in the case of unlisted companies, the benefit under the Scheme would not
be available to companies not listed in India. In such a case, there may be a
risk of taxability of gains on acquisition of underlying Equity Shares upon
redemption of ADSs.

Taxation on Sale of Equity Shares

         Subject to any relief under any relevant double taxation treaty, a
gain arising on the sale of an equity share by a non-resident investor will
generally give rise to a liability for Indian capital gains tax and tax is
required to be withheld at source. Capital gains on sale of equity shares,
which have been held for more than 12 months (measured from the date of advice
of redemption of ADSs by the depositary in the case of non-resident sellers)
are considered as long-term capital gains and generally taxable at the rate of
20%, except in the case of a sale of equity shares entered into on a
recognized stock exchange in India. Surcharge on this tax would be applicable
at the rate of 2.5% in the case of non-resident corporations, while for
individuals or an association of persons, the rate of surcharge would be 10%
if their Indian taxable income exceeds Rs.1,000,000. In all the above cases,
the amount of tax and surcharge would be increased by an Education Cess of 2%.
Article 9(5) of the Scheme indicates that the long term capital gains on sale
of redeemed underlying shares held by non-resident investors in the domestic
market would be charged to tax at 10% in accordance with the provisions of
section 115AC. Though section 115AC provides for lower rate of tax (i.e., 10%
plus surcharge where applicable and Education Cess of 2%) on long term capital
gains arising from transfer of ADSs (other than one between two non-residents
made outside India), it is unclear whether the lower rate of tax would also
extend to gains arising from transfer of shares converted from ADSs under the
amended provisions of Section 115AC. However, it may be noted that certain
other provisions of the Indian Income Tax Act also provide for lower rate of
tax (i.e. 10% plus surcharge where applicable and Education Cess of 2%) for
specific classes of taxpayers, such as FIIs, registered with SEBI.

         Long-term capital gains realized on the sale of equity shares which are
listed in India will be exempt from tax if the transaction of that sale is
entered into on a recognized stock exchange in India and the contract for the
sale of the equity shares is settled by the actual delivery or transfer of those
shares.

         Where equity shares have been held for 12 months or less, the rate of
tax varies and will be subject to tax at normal rates of income tax applicable
to non-residents under the provisions of the Indian Income Tax Act, subject to a
maximum of 40% (plus applicable surcharge and Education Cess as mentioned
above), except in the case of a sale of Equity Shares entered into in a
recognized stock exchange in India. The actual rate of tax on short-term gains
depends on a number of factors, including the legal status of the non-resident
holder and the type of income chargeable in India.

         During the period the underlying Equity Shares are held by non-resident
investors on a transfer from our depositary upon redemption of ADSs, the
provisions of the Avoidance of Double Taxation Agreement entered into by the
Government of India with the country of residence of the non-resident investors
will be applicable in the matter of taxation of any capital gain arising on a
transfer of our Equity Shares.

         Short-term capital gains realized on the sale of equity shares which
are listed in India will be chargeable to tax at 10% plus a surcharge of 2.5%
(or 10% in the case of individuals and association of persons if the gain
exceeds Rs. 1,000,000) and a further cess of 2%; provided the transaction of the
sale is entered into in a recognized stock exchange in India and the contract
for the sale of the shares is settled by the actual delivery or transfer of
those shares.

         Under the regulations, the purchase price of our Equity Shares received
in exchange for ADSs will be the price of the underlying Equity Shares on the
date that the depositary gives notice to the custodian of the delivery of the
Equity Shares in exchange for the corresponding ADSs. In the case of companies
listed in India, the purchase price of the equity shares would be the price of
the equity shares prevailing on the Bombay Stock Exchange Limited ("BSE") or The
National Stock Exchange of India Limited ("NSE") on the date the depositary
gives notice to the custodian of the delivery of the equity shares in exchange
for the corresponding ADSs. This deemed method of determining the purchase price
of the equity shares is not provided for under the Income Tax Act. In the event


                                      77
<PAGE>

that the tax department denies this benefit, the original purchase price of ADSs
would be considered the purchase price for computing the capital gains tax.

         However, the regulations and Section 115AC do not provide a basis for
determining the cost of acquisition for the purposes of computing capital gains
tax where the shares of the Indian company are not listed on the BSE or the NSE.
Therefore, in the case of our company, which is not listed on either the BSE or
the NSE, the determination of the purchase price of our Equity Shares is
unclear.

Rights

         Distributions to non-resident holders of additional ADSs or equity
shares or rights to subscribe for equity shares made with respect to ADSs or
equity shares are not subject to tax in the hands of the non-resident holder.

         It is unclear as to whether capital gain derived from the sale of
rights by a non-resident holder, not entitled to exemption under a tax treaty,
to another non-resident holder outside India will be subject to Indian capital
gains tax. If rights are deemed by the Indian tax authorities to be situated
within India, as our situs is in India, the gains realized on the sale of rights
will be subject to Indian taxation. These rights would generally be in the
nature of short-term capital assets.

Stamp Duty

         Upon the issuance of the Equity Shares underlying our ADSs, we are
required to pay a stamp duty of 0.1% per share of the issue price. A transfer of
ADSs is not subject to Indian stamp duty. Normally, upon the acquisition of
equity shares from a depositary in exchange for ADSs representing these equity
shares in physical form, an investor would be liable for Indian stamp duty at
the rate of 0.25% of the market value of the equity shares at the date of
registration. Similarly, a sale of equity shares by an investor would also be
subject to Indian stamp duty at the rate of 0.25% of the market value of the
equity shares on the trade date, although customarily the tax is borne by the
transferee, that is, the purchaser. In case the equity shares of the company are
held in a "dematerialized" form, such as a book-entry system, no stamp duty
would be payable on the acquisition or transfer of the equity shares.

Other Taxes

         At present, there are no Indian taxes on wealth, gifts or inheritance,
which may apply to our ADSs and any underlying Equity Shares.

Service Tax

         Brokerage or commissions paid to stockbrokers in connection with the
sale or purchase of shares traded in India is subject to a service tax of 10%.
The stockbroker is responsible for collecting the service tax and paying it to
the relevant authority. Payments received in India in convertible foreign
exchange are currently exempted from the levy of service tax provided certain
conditions are satisfied.

United States Federal Income Tax Considerations

         The following is a summary of United States federal income tax
considerations relating to the acquisition, ownership, and disposition of ADSs
or Equity Shares by U.S. Holders (as defined below) that will hold their ADSs or
Equity Shares as "capital assets" (generally, property held for investment)
under the United States Internal Revenue Code (the "Code"). This summary is
based upon existing United States federal income tax law, which is subject to
differing interpretations or change, possibly with retroactive effect. This
summary does not discuss all aspects of United States federal income taxation
which may be important to particular investors in light of their individual
investment circumstances, including holders subject to special tax rules (e.g.,
financial institutions, insurance companies, broker-dealers, partnerships and
their partners, and tax-exempt organizations (including private foundations)),
holders that are not U.S. Holders, holders that own (directly, indirectly, or
constructively) 10% or more of the total combined voting power of all classes of
our Equity Shares entitled to vote, holders that will hold our ADSs or our
Equity Shares as part of a straddle, hedge, conversion, constructive sale, or
other integrated transaction for United States federal income tax purposes, or
holders that have a functional currency other than the United States dollar, all
of whom may be subject to tax rules that differ significantly from those
summarized below. In addition, this summary does not discuss any non-United
States, state, or local tax considerations. Prospective investors are urged to
consult their tax advisors regarding the United States federal, state, local,

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<PAGE>

and non-United States income and other tax considerations of an investment in
our ADSs or our Equity Shares.

         For purposes of this summary, a "U.S. Holder" is a beneficial owner of
ADSs or Equity Shares that, for United States federal income tax purposes, is
(i) an individual who is a citizen or resident of the United States, (ii) a
corporation or other entity taxable as a corporation for United States federal
income tax purposes created in, or organized under the law of, the United States
or any State or political subdivision thereof, (iii) an estate the income of
which is includible in gross income for United States federal income tax
purposes regardless of its source, or (iv) a trust (A) the administration of
which is subject to the primary supervision of a United States court and which
has one or more United States persons who have the authority to control all
substantial decisions of the trust or (B) that has otherwise elected to be
treated as a United States person under the Code on the previous day, and
elected to continue to be so treated.

         If a partnership is a beneficial owner of our ADSs or Equity Shares,
the tax treatment of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership.

         For United States federal income tax purposes, U.S. Holders of ADSs
will be treated as the beneficial owners of the underlying shares represented by
the ADSs.

General

         A primary consideration related to making an investment in ADSs or
Equity Shares for United States investors is whether we are or will become
classified as a "passive foreign investment company" (a "PFIC"). A foreign
corporation, such as us, will be treated as a PFIC, for United States federal
income tax purposes, if 75% or more of its gross income consists of certain
types of "passive" income or 50% or more of its assets are passive. For the
purpose of applying the income and assets tests described above, we will be
treated as owning its proportionate share of the assets and earning the
proportionate share of the income of any other corporation that we own, directly
or indirectly, 25% or more (by value) of the stock of such corporation.

         It is uncertain whether we will be classified as a PFIC for U.S.
federal income tax purposes for our current taxable year ending March 31, 2007,
a determination that can only be made after the close of the taxable year. Even
if it is determined that we are not classified as a PFIC for our current taxable
year, we may become classified as a PFIC for the taxable year ending March 31,
2008 or future taxable years, particularly under circumstances where we
determine not to deploy significant amounts of cash for business development
purposes. The determination of whether we are, or will become, classified as a
PFIC is a fact intensive determination that is made annually based on the
composition and amounts of income that we earn and the composition and valuation
of our assets, all of which are subject to change. For purposes of determining
whether we are, or will become, classified as a PFIC, cash and other liquid
assets are categorized as passive assets and the value of our unbooked
intangibles are taken into account. The value of our assets for a taxable year
is determined by reference to the average of the fair market values of our
assets determined as of the end of each quarterly period during the taxable
year. In addition, the composition of our assets will be affected by how, and
how quickly, we spend our liquid assets that we presently hold. To the extent we
are able to deploy cash for business development purposes, our level of active
assets, as compared with our passive assets, may become more prominent.

         In estimating the value of our goodwill and other unbooked intangibles,
we have taken into account our market capitalization. If our market
capitalization is less than anticipated or subsequently declines, we may be or
become classified as a PFIC for the current or one or more future taxable years.
We believe that our valuation approach is reasonable. It is possible, however,
that the Internal Revenue Service may challenge the valuation of our goodwill
and other unbooked intangibles, which may result in us being or becoming
classified as a PFIC for the current or one or more future taxable years.

         If we are classified as a PFIC for any year during which a U.S. Holder
holds our ADSs or Equity Shares, we generally will continue to be treated as a
PFIC for all succeeding years during which such U.S. Holder holds our ADSs or
Equity Shares.

         Because PFIC status is a fact intensive determination made on an annual
basis, no assurance can be given that we are not or will not become classified
as a PFIC for the current or one or more future taxable years. The discussion
immediately below under the headings "Distributions" and "Sale or Other
Disposition of ADSs or Equity Shares" describes certain tax considerations if we
are not subject to classification as a PFIC for United States federal income tax
purposes, and are followed by a summary of the PFIC rules under the heading


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<PAGE>

"Passive Foreign Investment Company" if we were to be classified as a PFIC.
United States investors are urged to consult their tax advisors regarding the
potential application and effect of the PFIC rules in connection with their
prospective investment in our ADSs or our Equity Shares.

Distributions

         The gross amount of cash distributions with respect to the ADSs (or
Equity Shares) will, upon receipt by the Depositary (or by you), be includible
in your gross income as dividend income to the extent of our current and
accumulated earnings and profits, as determined under United States federal
income tax principles. A non-corporate recipient of dividend income will
generally be subject to tax on dividend income from a "qualified foreign
corporation" at a maximum United States federal tax rate of 15% rather than the
marginal tax rates generally applicable to ordinary income so long as certain
holding period requirements are met. A non-United States corporation (other than
a PFIC) generally will be considered to be a qualified foreign corporation (i)
if it is eligible for the benefits of a comprehensive tax treaty with the United
States which the Secretary of Treasury of the United States determines is
satisfactory for purposes of this provision and which includes an exchange of
information program or (ii) with respect to any dividend it pays on stock which
is readily tradable on an established securities market in the United States.
There is currently a tax treaty in effect between the United States and India
which the Secretary of Treasury has determined is satisfactory for these
purposes and we believe we should be eligible for the benefits of the treaty.
Distributions, in excess of current and accumulated earnings and profits, will
constitute a return of capital and will be applied against and reduce the
holder's tax basis in ADSs or Equity Shares. To the extent that distributions
are in excess of such basis, the distributions will constitute capital gain.
United States corporate holders will generally not be eligible for the dividends
received deduction for distributions to domestic corporations in respect of
distributions on our ADSs or our Equity Shares.

         The United States dollar value of any distribution made by us in Rupees
will be determined by reference to the exchange rate in effect on the date the
distribution is received by the Depositary (or you if you hold our Equity
Shares), regardless of whether the payment is in fact converted into U.S.
dollars on that date. Any subsequent gain or loss in respect of such Rupees
arising from exchange rate fluctuations will be ordinary income or loss. This
gain or loss will generally be treated as United States source gain or loss for
United States foreign tax credit limitation purposes.

         Dividends generally will be treated as income from foreign sources for
United States foreign tax credit limitation purposes. You may be eligible,
subject to a number of complex limitations, to claim a foreign tax credit in
respect of any foreign withholding taxes imposed on dividends received on the
ADSs or the Equity Shares. If you do not elect to claim a foreign tax credit for
foreign tax withheld, you may instead claim a deduction, for United States
federal income tax purposes, in respect of such withholding, but only for a year
in which you elect to do so for all creditable foreign income taxes.

Sale or Other Disposition of ADSs or Equity Shares

         You generally will recognize capital gain or loss for United States
federal income tax purposes upon a sale or other disposition of ADSs or Equity
Shares in an amount equal to the difference between the amount realized from the
sale or disposition and your adjusted tax basis in the ADSs or the Equity
Shares. Such gain generally will be long-term if, on the date of such sale or
disposition, you held such ADSs or Equity Shares for more than one year and will
generally be treated as United States source gain or loss for United States
foreign tax credit limitation purposes. The deductibility of a capital loss may
be subject to limitations.

Passive Foreign Investment Company

          If we are or were to become classified as a PFIC for any taxable year,
and unless you make a "mark-to-market" election (as described below), you would
be subject to special rules with respect to (i) any gain realized on the sale or
other disposition of ADSs or Equity Shares, and (ii) any "excess distribution"
made by us on the ADSs or Equity Shares (generally, any distributions paid to
you in respect of ADSs or Equity Shares during a single taxable year that are
greater than 125% of the average annual distributions received by you during the
three preceding taxable years or, if shorter, your holding period for such ADSs
or Equity Shares).

         Under the PFIC rules:

     o    the gain or excess distribution would be allocated ratably over your
          holding period for ADSs or Equity Shares;


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<PAGE>

     o    the amount allocated to the taxable year in which the gain or excess
          distribution was realized, and any taxable year prior to the first
          taxable year that you held our ADSs or our Equity Shares in which we
          are classified as a PFIC (a "pre-PFIC year"), would be taxable as
          ordinary income; and

     o    the amount allocated to each prior year, other than the current year
          and any pre-PFIC year, would be subject to (i) tax at the highest
          tax rate in effect for that year and (ii) an interest charge
          generally applicable to underpayments of tax based on the amount of
          the tax deferred during the time in which you owned ADSs or Equity
          Shares.

         As an alternative to the foregoing rules, a holder of "marketable
stock" in a PFIC may make a mark-to-market election, provided that the shares
are "regularly traded" on a "qualified exchange." So long as our ADSs are
regularly traded on the NASDAQ Capital Market, our ADSs should be treated as
marketable stock on a qualified exchange for this purpose. No assurances,
however, may be given whether the ADSs would be treated, or continue to be
treated, as "regularly traded" on such exchange. If you make a valid
mark-to-market election, you will generally (i) include as income for each
taxable year the excess, if any, of the fair market value of your ADSs or Equity
Shares as determined at the end of the taxable year over the adjusted tax basis
of such ADSs or Equity Shares and (ii) deduct as a loss the excess, if any, of
the adjusted tax basis of your ADSs or Equity Shares over the fair market value
of such ADSs or Equity Shares as determined at the end of the taxable year, but
only to the extent of the amount previously included in income as a result of
the mark-to-market election. Your adjusted tax basis in your ADSs or Equity
Shares would be adjusted to reflect any income or loss resulting from the
mark-to-market election.

         If you own ADSs or Equity Shares during any year that we are classified
as a PFIC, you must file an annual Internal Revenue Service Form 8621 that
describes the distributions received on ADSs or Equity Shares and the gain
realized on the disposition of ADSs or Equity Shares. You are urged to consult
your tax advisor concerning the United States federal income tax consequences of
acquiring, holding, and disposing of ADSs or Equity Shares if we are or become
classified as a PFIC, including the possibility of making a mark-to-market
election.


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<PAGE>

                                USE OF PROCEEDS

         In our initial offering of our ADSs, completed in June 2000, we sold a
total of 5,290,000 ADSs, representing 2,645,000 Equity Shares, to an
underwriting syndicate (including the underwriters' over-allotment option of
690,000 ADSs representing 345,000 equity shares) at an initial offering price of
US$12.00 per ADS. The managing underwriters were Goldman, Sachs & Co., Credit
Suisse First Boston, and Robert Fleming, Inc. We received US$57.3 million in net
proceeds from the offering. The gross proceeds from our June 2000 ADS offering
were US$63.48 million, out of which US$4.4 million was paid as underwriting and
management consulting fees and US$1.7 million was paid for other expenses.

         In our follow-on offering of ADSs, completed in November 2005, we
issued 3,026,480 ADSs, representing 1,513,240 Equity Shares, at a price of
US$15.86 per ADS. The sole underwriter was Deutsche Bank Securities Inc. We
received US$44.1 million in net proceeds from the follow-on offering. The gross
proceeds from the follow-on offering were US$48.0 million, out of which US$2.9
million was paid as underwriting fees and US$1.0 million was paid for other
expenses.

         As of March 31, 2006, the net proceeds of our ADS offerings, together
with our existing cash balances as of the date of each ADS offering and cash
from our operations, were utilized as follows:

     o    approximately US$24.4 million for strategic acquisitions and
          investments, including costs of acquisitions (US$ Nil was used
          during the fiscal 2006);

     o    approximately US$22.3 million to enhance our content and service
          offerings and promote our brands (approximately US$3.5 million was
          utilized during the fiscal 2006); and

     o    approximately US$12.5 million in capital expenditures (approximately
          US$4.6 million was used during the fiscal 2006).

         As of March 31, 2006, approximately US$53 million of the net proceeds
of our ADS offerings and cash from operations remain as cash and cash
equivalents and short term deposits with banks. We can withdraw these deposits
on demand. The Reserve Bank of India has the authority to compel us to bring
the proceeds to India and have them invested in Indian Rupee denominated bank
accounts in India. None of the net proceeds from our IPO and our follow-on ADS
offering were paid, directly or indirectly, to any of our directors, officers
or general partners or any of their associates, or to any persons owning ten
per cent or more of any class of our equity securities, or any affiliates.


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                            CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

         Our disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving the
objectives of the control system. As such, disclosure controls and procedures or
internal control systems may not prevent all error and all fraud. In addition,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, at our Company have been detected.

         Our management, with the participation of our Chairman, who serves as
our Principal Executive Officer, and our Chief Financial Officer, has evaluated
the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this annual report. Based on such evaluation, our
Chairman and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act and are effective in ensuring that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our Chairman and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

         There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal year to which this report relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

         Pursuant to an internal program to comply with the internal control
provisions of the Sarbanes-Oxley Act of 2002, we are currently engaged in a
project to document the design of controls and test the operating effectiveness
of key controls. This exercise could result in the identification of control
deficiencies either in the design or operating effectiveness which would require
strengthening of the controls to be commensurate with our size and the nature of
our business. See "Risk Factors - Risks relating to our Business - We may need
to improve our internal controls over financial reporting and our independent
auditors may not be able to attest to their effectiveness, which could adversely
affect our business operations, reputation and profitability."


                                      83
<PAGE>


                    PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table summarizes the fees billed to us by our principal
accountant, Deloitte Haskins & Sells, Mumbai, India and its affiliates
(collectively "Deloitte") for various services rendered to us during the fiscal
years ended March 31, 2004, 2005 and 2006.

                                   Fiscal year ended March 31,
                       -------------------------------------------------------
                          2004                2005                   2006
                       ------------     ---------------        ---------------
Audit Fee............  US$126,262       US$ 131,959             US$ 107,127
Audit-Related Fees...       7,401             2,570                     --
Tax Fees.............      12,483            10,058                  11,276
All other Fees.......         --                --                  161,205


         Audit-fees represents the aggregate fees billed by Deloitte in
connection with the audits of our annual consolidated financial statements, the
reviews of our quarterly financial statements and statutory audits. We appointed
Deloitte as auditors of our subsidiary, Rediff Holdings, Inc, for the first time
for the fiscal year ended March 31, 2004.

         Audit related fees represents payments for statutory certification work
for the fiscal years ended March 31, 2004 and 2005, as well as for obtaining our
auditors' consent on our Form S-8 filing during the fiscal year ended March 31,
2004 and on our Form F-3 Registration Statement filed during the fiscal year
ended March 31, 2005. Tax fees primarily comprise fees for tax audit, tax
returns, tax processing, tax filing and advisory services. Tax fees also include
other corporate tax services such as assistance with foreign income tax and
service tax.

         All other fees comprise of payments made to Deloitte for services in
connection with our Form F-3 Registration Statement and our follow-on ADS
offering in November 2005.

         Our Audit Committee charter requires us to obtain the prior approval of
our audit committee on every occasion we engage our principal accountants or
their associated entities to provide us any audit or non-audit services. We
disclose to our Audit Committee the nature of services that are provided. All of
the services provided by our principal accountants or their associated entities
in the previous two fiscal years (since the emergence of the pre-approval
rules), have been pre-approved by our Audit Committee.


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<PAGE>


                     PRESENTATION OF FINANCIAL INFORMATION

         The consolidated financial statements in this annual report have been
prepared in accordance with U.S. GAAP. Our fiscal year ends on March 31 of
each year so all references to a particular fiscal year are to the year ended
March 31 of that year. The consolidated financial statements, including the
notes to these financial statements, audited by Deloitte Haskins & Sells, an
independent registered public accounting firm, are set forth at the end of
this annual report.

         Although we have translated in this annual report certain Indian
Rupee amounts into U.S. dollars, this does not mean that the Indian Rupee
amounts referred to could have been, or could be, converted into U.S. dollars
at any particular rate, the rates stated earlier in this annual report, or at
all. The Federal Reserve Bank of New York certifies the exchange rate for
customs purposes on each date the rate is given. The noon buying rate on March
31, 2006 was Rs.44.48 per US$1.00.


                                      85
<PAGE>

                            ADDITIONAL INFORMATION

Memorandum and Articles of Association

Objects and Purposes

         The main object as stated in our Memorandum of Association is to
carry on and undertake the business of providing online information services
in various languages via electronic and other forms of communications for
local and other subscribers in India and abroad and to deal in all the
materials connected therewith. For purposes of carrying out this main object,
we are also authorized under our Memorandum of Association to carry on and
undertake the business of publishers of dailies, weeklies, fortnightly,
newspapers, periodicals, journals, magazines, directories, souvenirs,
year-books and other literary works in the electronic and other forms in any
language and on any subject and marketing including export markets,
sell/distribute such published items to subscribers in India and abroad.

Description of Share Capital

         The following description of our share capital does not purport to be
complete and is subject to and qualified in its entirety by the Company's
Articles of Association and Memorandum of Association, as amended, the
provisions of the Companies Act, as currently in effect, and other applicable
provisions of Indian law.

Share Capital

         Our authorized share capital is 24,000,000 Equity Shares, par value
Rs. 5 per share (after giving effect to our 2 for 5 reverse share split
effective May 3, 2000). As of March 31, 2006, 14,539,600 Equity Shares were
issued and outstanding.

         The Equity Shares are our only class of share capital. However, our
Amended and Restated Articles of Association and the Companies Act permit us
to issue classes of securities in addition to the equity shares. For the
purposes of this prospectus, "shareholder" means a shareholder who is
registered as a member in the register of members of our company.

         Shareholder Rights Agreements
         -----------------------------

         In connection with our sales of Equity Shares to our investors from
April 1998 through December 1999, we entered into nine separate shareholders
rights agreements with our shareholders which provide for, among other things,
certain preemptive, registration, co-sale and information rights, as well as
the right of some shareholders to appoint members or observers of our Board of
Directors. Some of the agreements also provide the shareholders with
protective provisions that require us to obtain our shareholders' consent to
take certain actions that would otherwise only require our Board's approval.

         Amended and Restated Shareholders' Rights Agreement
         ---------------------------------------------------

         On February 24, 2000 we entered into an Amended and Restated
Shareholders' Rights Agreement with certain of our shareholders to amend,
restate, supersede and replace all nine previous shareholder agreements we
entered into with our shareholders. The Amended and Restated Shareholders'
Rights Agreement, which became effective on the completion of our initial ADR
offering, provides for the following shareholder rights:

         Registration Rights
         -------------------

         Certain holders of at least 30% of our Equity Shares can require us,
subject to limitations, to effect a registration or qualification of the
securities either with the NASDAQ Global Market (formerly the NASDAQ National
Market), the NSE or the BSE. We are not required to effect:

          o    more than two such registrations or qualifications pursuant to
               such demand registration rights;


                                      86
<PAGE>

          o    a registration or qualification prior to the earlier of
               December 31, 2002, or six months after the effective date of
               any Indian law, regulation or other governmental order which
               allows our Equity Shares to be offered to the public on an
               Indian stock exchange; or

          o    a registration for a period not to exceed 120 days, if our
               Board of Directors has made a good faith determination that
               such registration would be detrimental to us or our
               shareholders.

         At any time after we become eligible to file a registration statement
on Form F-3, certain holders of our Equity Shares may require us to file
registration statements on Form F-3 with respect to their Equity Shares. We
are not required to effect this registration:

          o    more than once in a twelve month period;

          o    unless the registration relates to securities that are valued
               in excess of US$ 1,000,000; or

          o    if our Board of Directors has made a good faith determination
               that such registration would be detrimental to us or our
               shareholders.

         Each of the foregoing registration rights is subject to conditions
and limitations, including the right of the underwriters in any underwritten
offering to limit the number of Equity Shares to be included in such
registration. We are required to bear all the expenses of all such
registrations, except underwriting discounts and commissions. The registration
rights with respect to any holder thereof terminate upon the earlier of when
the holder may sell the Equity Shares within a three-month period pursuant to
Rule 144 of the Securities Act, or the time when the holder is able to convert
the registrable securities into ADSs which, beginning on June 24, 2002, are
traded on the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market).

         Other Rights
         ------------

         The Amended and Restated Shareholders' Rights Agreement also provides
certain preemptive, information and co-sale rights to our shareholders.

Dividends

         Under the Companies Act, unless our Board of Directors recommends the
payment of a dividend, we may not declare a dividend. Similarly, under our
Amended and Restated Articles of Association, although the shareholders may,
at the annual general meeting, approve a dividend in an amount less than that
recommended by the Board of Directors, they cannot increase the amount of the
dividend. In India, dividends generally are declared as a percentage of the
par value of a company's equity shares. Any dividend recommended by the Board
of Directors subject to the limitations described above, will be distributed
and paid to shareholders in proportion to the paid up value of their shares
within 30 days of the approval by the shareholders at the annual general
meeting. The Board of Directors may also declare interim dividend and the
amount of dividend, including interim dividend, is required to be deposited in
a separate bank account within five days from the date of declaration of such
dividend. If such dividend, including interim dividend, has not been paid or
claimed within 30 days of declaration of such dividend, we are required to
transfer the total amount of dividend which remains unpaid or unclaimed within
7 days of the expiry of the 30 day period, to a special bank account. Under
the Companies Act if a dividend has been declared by a company but has not
been paid within 30 days from the date of declaration to any shareholder
entitled to the payment of the dividend, each director of the company, if he
is knowingly a party to the default, will be punishable with imprisonment and
also liable to a fine. Pursuant to our Amended and Restated Articles of
Association, our Board of Directors has discretion to declare and pay interim
dividends without shareholder approval. With respect to Equity Shares issued
during a particular fiscal year (including any Equity Shares underlying ADSs
issued to the Depositary in connection with the offering or in the future),
cash dividends declared and paid for such fiscal year generally will be
prorated from the date of issuance to the end of such fiscal year. Under the
Companies Act, dividends can only be paid in cash to the registered
shareholder at a record date fixed on or prior to the annual general meeting
or to his order or his banker's order.

         Under the Companies Act, dividends and interim dividends may be paid
out of profits of a company in the year in which the dividend is declared or
out of the undistributed profits of previous fiscal years. Before declaring a
dividend the Companies Act requires that we provide for depreciation in
accordance with the Companies Act and also transfer to its reserves a minimum
percentage of its profits for that year, ranging between 2.5% to 10.0%
depending upon the dividend percentage to be declared in such year. The


                                      87
<PAGE>

Companies Act further provides that, in the event of an inadequacy or absence
of profits in any year, a dividend may be declared for such year out of the
company's accumulated profits, subject to the following conditions:

          o    the rate of dividend to be declared shall not exceed 10.0% of
               its paid up capital or the average of the rate at which
               dividends were declared by the company in the prior five years,
               whichever is less;

          o    the total amount to be drawn from the accumulated profits
               earned in the previous years and transferred to the reserves
               shall not exceed an amount equivalent to 10.0% of its paid up
               capital and free reserves, and the amount so drawn is to be
               used first to set off the losses incurred in the fiscal year
               before any dividends in respect of preference or equity shares
               are declared; and

          o    the balance of reserves after withdrawals shall not fall below
               15.0% of its paid up capital.

Bonus Shares

         In addition to permitting dividends to be paid out of current or
retained earnings as described above, the Companies Act permits us to
distribute an amount transferred from the general reserve or surplus in our
profit and loss account to our shareholders in the form of bonus shares which
is similar to paying a stock dividend. The Companies Act also permits the
issuance of bonus shares from a securities premium account. These bonus shares
must be distributed to shareholders in proportion to the number of equity
shares owned by them. Bonus shares are distributed to shareholders in the
proportion recommended by the Board of Directors. Shareholders of record on a
fixed record date are entitled to receive such bonus shares.

Preemptive Rights and Issue of Additional Shares

         The Companies Act gives shareholders the right to subscribe for new
shares in proportion to their respective existing shareholdings unless
otherwise determined by a special resolution passed by a general meeting of
the shareholders. For approval, this special resolution must be approved by a
number of votes which is not less than three times the number of votes against
the special resolution. If the special resolution is not approved, the new
shares must first be offered to the existing shareholders as of a fixed record
date. The offer must include: (1) the right, exercisable by the shareholders
of record, to renounce the shares offered in favor of any other person; and
(2) the number of shares offered and the period of the offer, which may not be
less than 15 days from the date of offer. If the offer is not accepted it is
deemed to have been declined. Our Board of Directors is authorized under the
Companies Act to distribute any new shares not purchased by the preemptive
rights holders in the manner that it deems most beneficial to the Company.

Annual General Meetings of Shareholders

         We must convene an annual general meeting of shareholders within 15
months of the previous annual general meeting or within six months after the
end of each fiscal year and may convene an extraordinary general meeting of
shareholders when necessary or at the request of a shareholder or shareholders
holding at least 10.0% of our paid up capital carrying voting rights. The
annual general meeting of the shareholders is generally convened by our
company secretary pursuant to a resolution of the Board. Written notice
setting out the agenda of the meeting must be given at least 21 days
(excluding the days of mailing and receipt) prior to the date of the general
meeting to the shareholders of record. Shareholders who are registered as
shareholders on the date of the general meeting are entitled to attend or vote
at such meeting.

         The annual general meeting of shareholders must be held at our
registered office or at such other place within the city in which the
registered office is located; meetings other than the annual general meeting
may be held at any other place if so determined by the Board of Directors. Our
registered office is located at 1st floor, Mahalaxmi Engineering Estate, L. J.
First Cross Road, Mahim (West), Mumbai 400 016.

         Our Articles of Association provide that a quorum for a general
meeting is the presence of at least five shareholders in person.

Voting Rights

         At any general meeting, voting is by show of hands unless a poll is
demanded by a shareholder or shareholders present in person or by proxy
holding at least 10.0% of the total shares entitled to vote on the resolution
or by those holding shares with an aggregate paid up capital of at least
Rs.50,000. Upon a show of hands, every shareholder entitled to vote and
present


                                      88
<PAGE>

in person has one vote and, on a poll, every shareholder entitled to vote and
present in person or by proxy has voting rights in proportion to the paid up
capital held by such shareholders.

         Any shareholder may appoint a proxy. The instrument appointing a
proxy must be delivered to us at least 48 hours prior to the meeting. A proxy
may not vote except on a poll. A corporate shareholder may appoint an
authorized representative who can vote on behalf of the shareholder, both upon
a show of hands and upon a poll.

         Ordinary resolutions may be passed by simple majority of those
present and voting at any general meeting for which the required period of
notice has been given. However, specified resolutions such as amendments to
our Amended and Restated Articles of Association and the Memorandum of
Association, commencement of a new line of business, the waiver of preemptive
rights for the issuance of any new shares and a reduction of share capital,
require that votes cast in favor of the resolution (whether by show of hands
or poll) are not less than three times the number of votes, if any, cast
against the resolution.

         Pursuant to the Companies (Issue of Share Capital with Differential
Voting Rights) Rules, 2001, issued on March 9, 2001, by the Department of
Company Affairs, Government of India, a company limited by shares is
authorized to issue shares with differential voting rights if the articles of
association of the company so authorizes. Our Amended and Restated Articles of
Association do not authorize issue of shares with differential voting rights.

         Pursuant to Section 192A of the Companies Act, a listed public
company has an option to pass any resolution relating to such businesses as
notified by the Central Government through a postal ballot. Since as of the
date of this prospectus, the Company is not a "listed public company", the
provisions of Section 192A of the Companies Act do not currently apply to us.

         Holders of our ADSs may exercise voting rights only through a
depositary, unlike an owner of Equity Shares, who can exercise voting rights
directly. An owner of ADSs generally will have the right under the deposit
agreement to instruct the Depositary to exercise the voting rights for the
Equity Shares represented by the ADSs. Owners of ADSs have no rights pursuant
to the Companies Act, under which we were incorporated, and are limited to
those rights granted to them pursuant to the deposit agreement.

         It is our expectation that our Depositary will mail to the owners of
ADSs any notice of shareholders' meeting timely received from us together with
information explaining how to instruct the Depositary to exercise the voting
rights of the Equity Shares represented by ADSs. If the Depositary timely
receives voting instructions from an owner of ADSs, it will endeavor to vote
the securities represented by those ADSs in accordance with such voting
instructions. In the event that voting takes place by a show of hands, the
depositary bank will cause the custodian to vote all deposited securities in
accordance with the instructions received from owners of a majority of the
ADSs for which the depositary bank receives voting instructions. However, the
ability of the Depositary to carry out voting instructions may be limited by
practical and legal limitations and the terms of the securities on deposit. We
cannot assure that holders of ADSs will receive voting materials in time to
enable them to return voting instructions to the depositary bank in a timely
manner.

Register of Shareholders; Record Dates; Transfer of Shares

         We maintain a register of shareholders. For the purpose of
determining the shares entitled to annual dividends, the register is closed
for a specified period prior to the annual general meeting. The date on which
this period begins is the record date.

         To determine which shareholders are entitled to specified shareholder
rights, we may close the register of shareholders. The Companies Act requires
us to give at least seven days' prior notice to the public before such
closure. We may not close the register of shareholders for more than thirty
consecutive days, and in no event for more than forty-five days in a year.

         Following the introduction of the Depositories Act, 1996, as amended,
and the repeal of Section 22A of the Securities Contracts (Regulation) Act,
1956, as amended, which enabled companies to refuse to register transfers of
shares in some circumstances, the equity shares of a public company are freely
transferable, subject only to the provisions of Section 111A of the Companies
Act. Since we are a public limited company, the provisions of Section 111A
will apply to us. Our Articles currently contain provisions which give our
directors discretion to refuse to register a transfer of shares in some
circumstances. Furthermore, in accordance with the provisions of Section
111A(2) of the Companies Act, our directors may refuse to register a transfer
of shares if they have sufficient cause to do so. If our directors refuse to


                                      89
<PAGE>

register a transfer of shares, the shareholder wishing to transfer his, her or
its shares may file a civil suit or an appeal with the Company Law Board
constituted under Section 10E of the Companies Act. Pursuant to Section
111A(3) of the Companies Act, if a transfer of shares contravenes any of the
provisions of the Indian Securities and Exchange Board of India Act, 1992 or
the regulations issued there under or the Indian Sick Industrial Companies
(Special Provisions) Act, 1985 or any other Indian laws, the Company Law Board
may, on application made by the company, a depository incorporated in India,
an investor, the Securities and Exchange Board of India or other parties,
direct the rectification of the register of records. The Company Law Board
may, in its discretion, issue an interim order suspending the voting rights
attached to the relevant shares before making or completing its investigation
into the alleged contravention. Notwithstanding such investigation, the rights
of a shareholder to transfer the shares will not be restricted.

         Under the Companies Act, unless the shares of a company are held in a
dematerialized form, a transfer of shares is effected by an instrument of
transfer in the form prescribed by the Companies Act and the rules thereunder
together with delivery of the share certificates.

Disclosure of Ownership Interest

         Section 187C of the Companies Act requires beneficial owners of
shares of Indian companies who are not holders of record to declare to us
details of the holder of record and the holder of record to declare details of
the beneficial owner. Any person who fails to make the required declaration
within 30 days may be liable for a fine of up to Rs.1,000 for each day the
declaration is not made. Any lien, promissory note or other collateral
agreement created, executed or entered into with respect to any equity share
by its registered owner, or any hypothecation by the registered owner of any
equity share, shall not be enforceable by the beneficial owner or any person
claiming through the beneficial owner if such declaration is not made. Failure
to comply with Section 187C will not affect our obligation to register a
transfer of shares or to pay any dividends to the registered holder of any
shares pursuant to which the declaration has not been made. While it is
unclear under Indian law whether Section 187C applies to holders of ADSs,
investors who exchange ADSs for the underlying Equity Shares will be subject
to the restrictions of Section 187C. The provisions of Section 187C of the
Companies Act do not, however, apply to a trustee holding shares of a company
for the benefit of the beneficiaries of a trust.

Audit and Annual Report

         At least 21 days before the annual general meeting of shareholders
excluding the days of mailing and receipt, we must distribute to our
shareholders a detailed version of our audited balance sheet and profit and
loss account and the related reports of the Board and the auditors, together
with a notice convening the annual general meeting. Under the Companies Act,
we must file the balance sheet and annual profit and loss account presented to
the shareholders within 30 days of the conclusion of the annual general
meeting with the Registrar of Companies in Mumbai, which is in the State of
Maharashtra, India. Our registered office is located in Mumbai. We must also
file an annual return containing a list of our shareholders and other
information, within 60 days of the conclusion of the meeting.

Company Acquisition of Equity Shares

         Under the Companies Act, approval of at least 75.0% of a company's
shareholders voting on the matter and approval of the High Court of the State
in which the registered office of the company is situated is required to
reduce a company's share capital. A company may, under some circumstances,
acquire its own equity shares without seeking the approval of the High Court.
However, a company would have to extinguish the shares it has so acquired
within the prescribed time period. A company is not permitted to acquire its
own shares for treasury operations. An acquisition by a company of its own
shares (without having to obtain the approval of the High Court) must comply
with prescribed rules, regulations and conditions as laid down in the
Companies Act. In addition, private and unlisted public companies such as
ours, would have to comply with the Private Limited Company and Unlisted
Public Limited Company (Buy-back of Securities) Rules, 1999, notified by the
Ministry of Law, Justice and Company Affairs of the Government of India on
July 6, 1999 and public companies which are listed on a recognized stock
exchange in India would have to comply with the provisions of the Securities
and Exchange Board of India (Buy-back of Securities) Regulations, 1998, or
Buy-back Regulations. Since we are not listed on any recognized stock exchange
in India, we would have to comply with the relevant provisions of the
Companies Act and the Private Limited Company and Unlisted Public Limited
Company (Buy-back of Securities) Rules, 1999.


                                      90
<PAGE>

Liquidation Rights

         Subject to the rights of creditors, workmen and the holders of any
shares entitled by their terms to preferential repayment over the Equity
Shares, if any, in the event of our winding-up the holders of the Equity
Shares are entitled to be repaid the amounts of paid up capital or credited as
paid upon those Equity Shares. Further, in the event of a winding up, the
shareholders of the Company would be liable for an amount not exceeding the
aggregate unpaid amount of the face value of shares of the Company held by
such shareholders. All surplus assets after payments to the holders of any
preference shares and other creditors shall be paid to holders of Equity
Shares in proportion to their shareholdings at the commencement of the
winding-up.

Material Contracts

Underwriting Agreement

         On November 9, 2005, we entered into an underwriting agreement (the
"Underwriting Agreement") with Deutsche Bank Securities Inc. The Underwriting
Agreement provided for the sale of 3,026,480 ADSs, representing 1,513,240
Equity Shares, to Deutsche Bank Securities Inc. at US$15.86 per ADS. The ADSs
were offered and sold under a prospectus supplement filed with the SEC
pursuant to Rule 424(b)(2) of the Securities Act, in connection with a shelf
takedown from our registration statement on Form F-3 (Registration No.
333-122536) (the "Shelf Registration Statement"), which was declared effective
September 30, 2005. See "Use of Proceeds".

Indemnity Agreements

         Consistent with the disclosure in the Shelf Registration Statement,
on November 8, 2005 we entered into indemnity agreements with Mr. Sridar
Iyengar, Mr. Ashok Narasimhan, Mr. Pulak Prasad and Mr. Joy Basu, pursuant to
which we have agreed to indemnify each of them against certain liabilities and
expenses incurred by them in connection with claims made by reason of their
being directors and/or officers.



                                      91
<PAGE>

                             DOCUMENTS ON DISPLAY

         This annual report and other information filed or to be filed by the
Company can be inspected and copied at the public reference facilities
maintained by the SEC at:

          Office of Investor Education and Assistance
          100 F Street, NE
          Washington, DC 20549
          (202) 551-6551
          e-mail: help@sec.gov

         Copies of these materials can also be obtained from the Public
Reference Section of the SEC, 100 F Street, NE, Washington, D.C. 20549, at
prescribed rates.

         The SEC maintains a website at www.sec.gov that contains reports and
other information regarding registrants that make electronic filings with the
SEC using its EDGAR system. With effect from November 4, 2002, the SEC has
issued a Rule mandating use of EDGAR system of filing for all international
filers. The Company has accordingly been following the Rule.

         Additionally, documents referred to in this Form 20-F may be
inspected at our registered office, which is located at Mahalaxmi Engineering
Estate, 1st Floor, L.J. First Cross Road, Mahim (West), Mumbai 400 016, India.


                                      92
<PAGE>


                                 EXHIBIT INDEX

Exhibit No.           Description of Document
-----------           -----------------------

          *1.1        Articles of Association, as amended.
          *1.2        Memorandum of Association, as amended.
          *1.3        Certificate of Incorporation, as amended.
          *2.1        Form of Deposit Agreement among Rediff.com, Citibank,
                      N.A., and holders from time to time of American
                      Depository Receipts issued thereunder (including as an
                      exhibit, the form of American Depository Receipt).
          *2.2        Rediff.com's specimen certificate for equity shares.
          *2.3        Amended and Restated Shareholder Rights Agreement dated
                      February 24, 2000 between Rediff.com and the
                      shareholders of Rediff.com.
          *4.1        1999 Employee Stock Option Plan.
          *4.2        1999 Associate Stock Option Plan.
        ***4.3        2002 Stock Option Plan.
       ****4.4        2004 Stock Option Plan.
           4.5        2006 Employee Stock Option Plan.
          *4.6        Form of Indemnification Agreement.
           4.7        Indemnification Agreement dated November 8, 2005 between
                      Rediff.com and Sridar A. Iyengar.
           4.8        Indemnification Agreement dated November 8, 2005 between
                      Rediff.com and Ashok Narasimhan.
           4.9        Indemnification Agreement dated November 8, 2005 between
                      Rediff.com and Pulak Chandan Prasad.
          4.10        Indemnification Agreement dated November 8, 2005 between
                      Rediff.com and Joy Basu.
         *4.11        Sublease dated July 5, 1999 between Shreenathji Balaji
                      Computech Private Limited and Rediff.com.
         *4.12        Letter Agreement dated December 28, 1998 between
                      Rediffusion-Dentsu, Young & Rubicam Limited and
                      Rediff.com.
         *4.13        Promoters Agreement dated January 9, 1996 between Ajit
                      Balakrishnan and Diwan Arun Nanda.
        **4.14        Stock Purchase Agreement among Rediff.com, ValuCom and
                      shareholders of ValuCom dated March 21, 2001.
        **4.15        Stock Purchase Agreement among Rediff.com, India Abroad
                      and shareholders of India Abroad dated March 21, 2001,
                      as amended on April 27, 2001.
        **4.16        Amended and Restated Agreement and Plan of
                      Reorganization among Rediff.com, Thinkindia.com, Inc.,
                      Rediff Holdings, Inc., the principal stock holders of
                      Think India and certain other parties thereto dated
                      February 27, 2001.
     *****4.17        Agreement for sale of assets of Value Communications
                      Corporation dated April 8, 2004.
    ******4.18        Underwriting Agreement dated November 9, 2005 between
                      Rediff.com and Deutsche Bank Securities Inc.
          12.1        Certification of Principal Executive Officer pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002.
          12.2        Certification of Principal Financial Officer pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002.



                                      93
<PAGE>

          13.1        Certification of Principal Executive Officer pursuant to
                      18. U.S.C. Section 1350, as adopted pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002.
          13.2        Certification of Principal Financial Officer pursuant to
                      18. U.S.C. Section 1350, as adopted pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002.

*        Incorporated by reference to exhibits filed with the Registrant's
         Registration Statement on Form F-1 (File No. 333-37376)

**       Incorporated by reference to exhibits filed with the Registrant's Form
         20-F for the fiscal year ended March 31, 2001.

***      Incorporated by reference to exhibits filed with the Registrant's Form
         20-F for the fiscal year ended March 31, 2003.

****     Incorporated by reference to exhibits filed with the Registrant's Form
         S-8 filed on December 30, 2004.

*****    Incorporated by reference to exhibits filed with the Registrant's Form
         20-F for the fiscal year ended March 31, 2004.

******   Incorporated by reference to exhibits filed with the Registrant's Form
         6-K filed on November 9, 2005.


                                      94
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                          Page
                                                                          ----

Report of Independent Registered Public Accounting Firm on
the Consolidated Financial Statements                                    F-2

Consolidated Balance Sheets at March 31, 2005 and 2006                   F-3

Consolidated Statements of Operations for the years ended
March 31, 2004, 2005 and 2006                                            F-4

Consolidated Statements of Shareholders' Equity for the
years ended March 31, 2004, 2005 and 2006                                F-5

Consolidated Statements of Cash Flows for the years ended
March 31, 2004, 2005 and 2006                                            F-6

Notes to Consolidated Financial Statements                               F-7

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule of Valuation and Qualifying
Accounts                                                                 F-29

Schedule of Valuation and Qualifying Accounts                            F-30



                                      F-1
<PAGE>



            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of Rediff.com India Limited:



We have audited the accompanying consolidated balance sheets of Rediff.com
India Limited and subsidiaries ("the Company") as of March 31, 2005 and 2006,
and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the years in the three year period ended
March 31, 2006. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly we express no such opinion. An audit
also 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 audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, such consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of March 31, 2005 and 2006 and the
consolidated results of its operations and its cash flows for each of the
years in the three year period ended March 31, 2006 in conformity with
accounting principles generally accepted in the United States of America.

As described in Note 2(b), these consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America, which differ in certain material respects from
accounting principles generally accepted in India, which form the basis of the
Company's general purpose financial statements.



Deloitte Haskins & Sells
Mumbai, India
September 28, 2006



                                      F-2

<PAGE>
<TABLE>
<CAPTION>

                                       REDIFF.COM INDIA LIMITED

                                     CONSOLIDATED BALANCE SHEETS
                                    as of March 31, 2005 and 2006


                                                                                             2005                 2006
                                                                                      -------------------    -----------------
<S>                                                                                   <C>                    <C>
Assets
Current Assets
   Cash and cash equivalents                                                              US$ 10,069,356        US$53,093,635
   Trade accounts receivable, (net of allowances)
   US$1,434,910  and US$1,766,424 at March 31,2005
     and 2006 respectively)                                                                    3,093,372            5,376,373
   Prepaid expenses and other current assets (See Note 4)                                      1,881,875            1,665,678
   Recoverable income taxes                                                                      278,028              515,834
                                                                                      -------------------    -----------------
Total current assets                                                                          15,322,631           60,651,520

Property, plant and equipment - net (See Note 5)                                               2,557,753            5,531,672
Goodwill (See Note 6)                                                                          7,314,468            7,314,468
Other assets (See Note 7)                                                                        495,560              612,613

                                                                                      -------------------    -----------------
Total assets                                                                               US$25,690,412        US$74,110,273
                                                                                      -------------------    -----------------

Liabilities and Shareholders' equity
Current liabilities
   Accounts payable and accrued liabilities                                                 US$4,863,631         US$5,689,259
   Customer advances and unearned revenues                                                     1,014,419            1,549,310
                                                                                      -------------------    -----------------
Total current liabilities                                                                      5,878,050            7,238,569

Other liabilities                                                                                 15,859                1,428
                                                                                      -------------------    -----------------
Total liabilities                                                                              5,893,909            7,239,997
                                                                                      -------------------    -----------------

Commitments and contingencies (See note 18)                                                           --                   --
                                                                                      -------------------    -----------------

Shareholders' equity
   Equity shares: par value -- Rs.5,  Authorized:
     24,000,000 shares at March 31, 2005 and 2006 ;
   Issued and outstanding: 12,880,050 shares and
   14,539,600 shares at March 31, 2005 and 2006,
     respectively (See note 9)                                                                 1,543,938            1,726,318
Additional paid in capital                                                                    77,270,439          122,233,641
Accumulated other comprehensive loss                                                         (3,195,953)          (2,480,881)
Deferred compensation expense                                                                      (262)                    -
Accumulated deficit                                                                         (55,821,659)         (54,608,802)
                                                                                      -------------------    -----------------
Total shareholders' equity                                                                    19,796,503           66,870,276
                                                                                      -------------------    -----------------
Total liabilities and shareholders' equity                                                 US$25,690,412        US$74,110,273
                                                                                      -------------------    -----------------

See accompanying notes to consolidated financial statements
</TABLE>





                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                           REDIFF.COM INDIA LIMITED

                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                            For each of the years ended March 31, 2004, 2005 and 2006


                                                                2004                    2005                  2006
                                                        ------------------      -----------------     -----------------
<S>                                                     <C>                     <C>                   <C>
Operating revenues
India Online                                                 US$3,636,183           US$6,556,320         US$12,174,927
U.S. Publishing                                                 5,810,420              6,070,344             6,525,753
                                                        ------------------      -----------------     -----------------
Total revenues                                                  9,446,603             12,626,664            18,700,680
                                                        ------------------      -----------------     -----------------
Cost of revenues
India Online                                                    1,130,373              1,593,218             1,593,894
U.S. Publishing                                                 3,608,029              3,519,906             3,445,540
                                                        ------------------      -----------------     -----------------
Total cost of revenues                                          4,738,402              5,113,124             5,039,434
                                                        ------------------      -----------------     -----------------
Operating expenses
Sales and marketing                                               950,268              2,278,297             3,474,971
Product development                                             1,598,199              1,832,394             2,578,339
General and administrative                                      5,378,600              5,116,020             6,629,657
                                                        ------------------      -----------------     -----------------
Total operating expenses                                        7,927,067              9,226,711            12,682,967
                                                        ------------------      -----------------     -----------------
Operating (Loss) Income                                       (3,218,866)            (1,713,171)               978,279
                                                        ------------------      -----------------     -----------------
Other income (expense), net:
Interest income                                                   331,806                518,958             1,225,416
Foreign exchange (loss) gain, net                               (459,075)                  5,055             (975,488)
Miscellaneous income                                                2,137                  7,272                 2,253
                                                        ------------------      -----------------     -----------------
                                                                (125,132)                531,285               252,181
                                                        ------------------      -----------------     -----------------

(Loss) Income from continuing operations                      (3,343,998)            (1,181,886)             1,230,460
before income taxes
Income tax expense                                                (4,862)               (37,994)              (17,603)
                                                        ------------------      -----------------     -----------------
(Loss) Income from continuing operations                   US$(3,348,860)         US$(1,219,880)          US$1,212,857
Loss from discontinued operations (See Note 3)             US$(2,370,982)           US$(207,710)                    --
                                                        ------------------      -----------------     -----------------
Net (Loss) Income                                          US$(5,719,842)         US$(1,427,590)          US$1,212,857
                                                        ------------------      -----------------     -----------------
Weighted average number of equity shares
-- Basic                                                       12,799,997             12,850,424            13,487,212
Weighted average number of equity shares
-- Diluted                                                     12,799,997             12,850,424            13,763,989

(Loss) Earnings per share - Basic
continuing operations                                        Cents(26.00)           Cents(10.00)            Cents 8.99
discontinued operations                                           (19.00)                 (1.00)                    --
                                                        ------------------      -----------------     -----------------
(Loss) Earnings per share - Basic                            Cents(45.00)           Cents(11.00)            Cents 8.99
                                                        ------------------      -----------------     -----------------

(Loss) Earnings per share - Diluted
continuing operations                                        Cents(26.00)           Cents(10.00)             Cents8.81
discontinued operations                                           (19.00)                 (1.00)                    --
                                                        ------------------      -----------------     -----------------
(Loss) Earnings per share - Diluted                          Cents(45.00)           Cents(11.00)             Cents8.81
                                                        ------------------      -----------------     -----------------


(Loss) Earnings per ADS -- (where 2 ADSs
are equal
to 1 equity share) - Basic
continuing operations                                        Cents(13.00)            Cents(5.00)             Cents4.50
discontinued operations                                            (9.00)                 (0.50)                    --
(Loss) Earnings per ADS -- (where 2 ADSs are equal
                                                        ------------------      -----------------     -----------------
to 1 equity share) -- Basic                                  Cents(22.00)            Cents(5.50)             Cents4.50
                                                        ------------------      -----------------     -----------------

(Loss) Earnings per ADS -- (where 2 ADSs
are equal
to 1 equity share) - Diluted
continuing operations                                        Cents(13.00)            Cents(5.00)            Cents 4.41
discontinued operations                                            (9.00)                 (0.50)                    --

(Loss) Earnings per ADS -- (where 2
ADSs are equal                                          ----------------------  -----------------     -----------------
to 1 equity share) -- Diluted                                Cents(22.00)            Cents(5.50)             Cents4.41
                                                        ----------------------  -----------------     -----------------



See accompanying notes to consolidated financial statements
</TABLE>



                                      F-4
<PAGE>


<TABLE>
<CAPTION>

                                                      REDIFF.COM INDIA LIMITED

                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                    For each of the years ended March 31, 2004, 2005 and 2006

                                                  Equity Shares
                                                  (See note 9)
                                        ----------------------------------
                                           Number                                                      Accumulated
                                                                               Additional Paid            other
                                             of                                       in               Comprehensive
                                           Shares             Amount               Capital                Loss
                                        --------------    ----------------    ------------------    ------------------
<S>                                     <C>                 <C>                  <C>                  <C>
Balance, as of April 1, 2003               12,795,200        US$1,534,308         US$76,903,671        US$(4,221,694)
Amortization of compensation related               --                  --                    --                    --
to stock option grants
Stock options exercised                        32,225               3,557                69,916                    --
Net loss                                           --                  --                    --                    --
Cumulative foreign currency
translation adjustment                             --                  --                    --             1,132,384
                                        --------------    ----------------    ------------------    ------------------
Balance, as of March 31, 2004              12,827,425        US$1,537,865         US$76,973,587        US$(3,089,310)

Amortization of compensation related               --                  --                    --                    --
to stock option grants
Stock options exercised                        52,625               6,073               296,852                    --
Net loss                                           --                  --                    --                    --
Cumulative foreign currency
translation adjustment                             --                  --                    --             (106,643)
                                        --------------    ----------------    ------------------    ------------------
Balance, as of March 31, 2005              12,880,050        US$1,543,938         US$77,270,439        US$(3,195,953)

Amortization of compensation related               --                  --                    --                    --
to stock option grants
Issue of Shares (including stock            1,659,550             182,380            44,963,202                    --
options exercised)
Net Income                                         --                  --                    --                    --
Cumulative foreign currency
translation adjustment                             --                  --                    --               715,072
                                        --------------    ----------------    ------------------    ------------------
Balance, as of March 31, 2006              14,539,600        US$1,726,318        US$122,233,641        US$(2,480,881)
                                        --------------    ----------------    ------------------    ------------------

See accompanying notes to consolidated financial statements
</TABLE>



Chart Continued

<TABLE>
<CAPTION>

                                            Deferred
                                          Compensation           Accumulated
                                             Expense                Deficit                 Total
                                        ------------------    ------------------     -------------------
<S>                                    <C>                   <C>                    <C>
Balance, as of April 1, 2003                   US$(1,136)       US$(48,674,227)           US$25,540,922
Amortization of compensation related                  426                    --                     426
to stock option grants
Stock options exercised                                --                    --                  73,473
Net loss                                               --           (5,719,842)             (5,719,842)
Cumulative foreign currency
translation adjustment                                 --                    --               1,132,384
                                        ------------------    ------------------     -------------------
Balance, as of March 31, 2004                    US$(710)       US$(54,394,069)           US$21,027,363

Amortization of compensation related                  448                    --                     448
to stock option grants
Stock options exercised                                --                    --                 302,925
Net loss                                               --           (1,427,590)             (1,427,590)
Cumulative foreign currency
translation adjustment                                 --                    --               (106,643)
                                        ------------------    ------------------     -------------------
Balance, as of March 31, 2005                    US$(262)       US$(55,821,659)           US$19,796,503

Amortization of compensation related                  262                    --                     262
to stock option grants
Issue of Shares (including stock                       --                    --              45,145,582
options exercised)
Net Income                                             --             1,212,857               1,212,857
Cumulative foreign currency
translation adjustment                                 --                    --                 715,072
                                        ------------------    ------------------     -------------------
Balance, as of March 31, 2006                        US$-       US$(54,608,802)           US$66,870,276
                                        ------------------    ------------------     -------------------

See accompanying notes to consolidated financial statements
</TABLE>




                                      F-5
<PAGE>
<TABLE>
<CAPTION>


                                                  REDIFF.COM INDIA LIMITED

                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   For each of the years ended March 31, 2004, 2005 and 2006

                                                                                  Years ended March 31,
                                                                -----------------------------------------------------------
                                                                      2004                 2005                 2006
                                                                -----------------    -----------------    -----------------

Cash flows from operating activities
------------------------------------

<S>                                                               <C>                  <C>                    <C>
Net (Loss) Income                                                 US$(5,719,842)       US$(1,427,590)         US$1,212,857
 Loss from discontinued operations                                     2,370,982              207,710                   --
 Adjustments relating to continuing operations to
 reconcile net (loss) income to net cash (used in)
 generated from continuing operations:
 Depreciation and amortization                                         1,306,518              735,232            1,514,471
 Loss on sale of property, plant and equipment                            29,509                5,859               25,125
 Stock based compensation expense                                            426                  448                  262
 Changes in assets and liabilities:
     Trade accounts receivable                                         (451,212)          (1,213,581)          (2,283,001)
     Prepaid expenses and other current assets                           187,655            (745,091)              191,196
     Recoverable income taxes                                            205,223            (143,395)            (237,806)
     Other assets                                                       (38,354)              341,730            (117,053)
     Accounts payable and accrued liabilities                          (898,037)            2,064,992              824,440
     Customer advances and unearned revenues                             119,124              317,285              534,891
     Other Liabilities                                                     1,445                  473              (1,980)
                                                                -----------------    -----------------    -----------------
 Net cash (used in) generated from continuing operations             (2,886,563)              144,073            1,663,403
                                                                -----------------    -----------------    -----------------
 Net cash (used in) generated from discontinued operations             (373,744)            (509,568)               13,737
                                                                -----------------    -----------------    -----------------
     Net cash (used in) generated from operating activities          (3,260,307)            (365,495)            1,677,140
                                                                -----------------    -----------------    -----------------
 Cash flows from investing activities
 Payments to acquire property, plant and equipment                     (596,763)          (1,855,901)          (4,618,379)
 Cash received from discontinued operations (Sale
 of Valucom business)                                                         --              407,000                   --

 Proceeds from sales of property, plant and equipment                     34,980               24,810               33,645
                                                                -----------------    -----------------    -----------------
     Net cash used in investing activities                             (561,783)          (1,424,091)          (4,584,734)
                                                                -----------------    -----------------    -----------------

 Cash flows from financing activities
 Net proceeds from issue of equity shares                                 73,473              302,925           45,145,582
                                                                -----------------    -----------------    -----------------
     Net cash generated from provided by financing
       activities                                                         73,473              302,925           45,145,582
                                                                -----------------    -----------------    -----------------
 Effect of exchange rate changes on cash                               1,004,004             (83,156)              786,291
 Net (decrease) increase in cash and cash equivalents                (2,744,613)          (1,569,817)           43,024,279
 Cash and cash equivalents at the beginning of the year               14,383,786           11,639,173           10,069,356
                                                                -----------------    -----------------    -----------------
     Cash and cash equivalents at the end of the year              US$11,639,173        US$10,069,356        US$53,093,635
                                                                -----------------    -----------------    -----------------
 Supplemental disclosure of cash flow information:
      Income taxes paid                                                    US$--            US$27,981            US$30,053
      Interest paid                                                       US$942               US$189                US$--

 See accompanying notes to consolidated financial statements
</TABLE>




                                      F-6
<PAGE>

                            REDIFF.COM INDIA LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Organization and Business

         Rediff.com India Limited (the "Company") was incorporated as a private
limited company in India on January 9, 1996 under the Indian Companies Act, 1956
and was converted to a public limited company on May 29, 1998. The Company's
American Depository Shares ("ADSs") are listed on the NASDAQ Capital Market
(formerly the NASDAQ Small Cap Market).

         In February 2001, the Company established Rediff Holdings, Inc.
("RHI"), a Delaware Corporation, as a wholly-owned subsidiary to be a holding
company for certain of its investments in the United States of America. On
February 27, 2001, RHI acquired thinkindia.com, Inc ("thinkindia"), later
renamed Rediff.com, Inc. On April 27, 2001, RHI acquired India Abroad
Publications, Inc. ("India Abroad"), an offline and online news company.

         In March 2001, the Company acquired Value Communications Corporation
("ValuCom"), an Illinois Corporation that provided internet-based prepaid long
distance services in the United States. On April 8, 2004, the Company sold its
phone card business to Worldquest Networks, Inc. (See Note 3).

         The Company is in the business of providing online internet based
services, focusing on India and the global Indian community. Its websites
consists of interest specific channels relevant to Indian interests such as
cricket, astrology, matchmaker and movies, content on various matters like news
and finance, search facilities, a range of community features such as e-mail,
chat, messenger, e-commerce, broadband wireless content and wireless short
messaging services to mobile phone subscribers in India. Additionally, the
Company publishes a weekly newspaper, India Abroad, in the United States and
Canada.

         During the year ended March 31, 2006, the Company issued 3,026,480
ADSs representing 1,513,240 equity shares on account of Company's follow on
offering in November 2005 at US$ 15.86 per ADS, the aggregate proceeds of
which were US$47,999,973 (net proceeds of US$44,074,195 after deducting
issuance costs of US$3,925,778).

2.       Significant accounting policies

         (a)      Principles of consolidation

         The consolidated financial statements include the accounts of the
Company and its directly and indirectly held subsidiaries RHI, India Abroad,
Rediff.com, Inc. and ValuCom, which have been consolidated from their respective
dates of acquisition. All significant inter-company accounts and transactions
are eliminated on consolidation.

         (b)      Basis of preparation of financial statements

         The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
("U.S. GAAP"). All amounts have been stated in U.S. dollars. U.S. GAAP differs
in certain material respects from accounting principles generally accepted in
India, which form the basis of the Company's general-purpose financial
statements. Principal differences insofar as they relate to the Company include
consolidation of subsidiaries, accounting for business combinations, valuation
of investments, accounting for deferred income taxes, stock based compensation,
website development costs and the presentation and format of the financial
statements and related notes.

         (c) Use of estimates

         The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an ongoing basis, the Company evaluates its estimates,
including those related to uncollectible receivables, goodwill, deferred tax
assets and retirement benefits. Actual results could differ from those
estimates.


                                     F-7
<PAGE>


         (d) Revenue recognition

         India Online business

         India Online business includes revenues from online advertising and fee
based services. Online advertising includes advertisement and sponsorships and
designing and managing customers' websites. Fee based services include
e-commerce, subscription services and wireless short messaging services.
E-commerce revenues primarily consist of commission earned on sale of items to
customers who shop online while subscription services consist of subscriptions
received for using e-mail, matchmaker, astrology and other subscriber services.
Wireless short messaging services include revenues derived from mobile phone
operators based on value added text messages received and sent by mobile
subscribers over their mobile phones.

         Advertisement and sponsorship income is derived from customers who
advertise on the Company's website or to whom direct links from the Company's
website to their own websites are provided and, income earned from designing and
managing customers' websites.

         Revenue from advertisement and sponsorships is recognized ratably over
the contractual period of the advertisement, commencing when the advertisement
is placed on the website. Revenues are also derived from sponsor buttons placed
in specific areas of the Company's website, which generally provide users with
direct links to sponsor websites. These revenues are recognized ratably over the
period in which the advertisement is displayed, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable. Company obligations may include guarantees of a minimum number of
impressions, or times, that an advertisement appears in pages viewed by users of
the Company's website. To the extent that minimum guaranteed impressions are not
met, the Company defers recognition of the corresponding revenues until the
guaranteed impression levels are achieved. The Company also earns revenues from
the sending of e-mail messages to its users on behalf of advertisers and such
revenues are recognized in the period when such e-mail messages are sent.

         The Company also earns revenues on sponsorship contracts for fees
relating to the design, coordination, and integration of the customers' content.
Sponsorship contract revenues are recognized ratably over the term of the
contract.

         Website development services principally consist of services relating
to the designing of graphics, layout, artwork and content of the client's
website. Revenue from such services on large contracts that take relatively
longer periods of time to complete are recognized upon completion of milestones
specified in the contract. At each such milestone, the services are either
billed or billable, and as they relate to completed work, are earned. Revenue
from such services on contracts that take relatively shorter periods of time are
recognized on completion of the entire contract. During fiscal years 2004, 2005
and 2006, such short-term contracts constituted substantially all of these
services.

         E-commerce revenue primarily consists of commission from the sale of
books, music, apparel, confectionery, gifts and other items to retail customers
who shop at the Company's online store.

         Customers directly place orders with vendors through the Company's
website. When an order is placed, the Company informs the vendor through an
intranet and also confirms whether payment has already been collected by the
Company through credit card/debit card or checks, or whether the payment is to
be made by the customer on cash-on-delivery ("COD") basis. The vendor then
dispatches the products to the customers. The vendor sends a periodic summary of
the transactions executed for which the Company has collected payments on its
behalf. The Company makes payment to the vendor after deduction of its share of
margin and costs. The Company recognizes as revenues the commission earned on
these transactions and shipping costs recovered from customers.

         Revenues from E-commerce services also include fees charged to vendors
for creating, designing and hosting the vendors' product information on the
Company's website. Such fees are amortized over the hosting contract period.

         Subscription service revenues primarily include income from various
paid e-mail and other service products that cater to a cross section of the
Company's registered user base. The revenue for subscription based services is
recognized ratably over the period of subscription.


                                     F-8
<PAGE>


         Subscription revenues are also derived from providing value added short
messaging services such as e-mail and other related products to mobile phone
users. The Company contracts with third-party mobile phone operators for sharing
revenues from these services. SMS based revenues are recognized when the service
is performed.

         U.S. Publishing business

         U.S. Publishing business primarily includes advertising and sponsorship
revenues and consumer subscription revenues earned from the publication of India
Abroad, a weekly newspaper distributed primarily in the United States and
Canada. It also includes the advertising revenues of Rediff India Abroad, the
website catering to the Indian community in the U.S.

         Advertising revenues are recognized at the time of publication of the
related advertisement. Subscription income is deferred and recognized pro rata
as fulfilled over the terms of such subscription.

         Revenues from banners and sponsorships are recognized over the
contractual period of the advertisement, commencing when the advertisement is
placed on the website, provided that no significant obligations remain and
collection of the resulting receivable is probable. Obligations may include
guarantee of a minimum number of impressions, or times that an advertisement
appears in pages viewed by users of the Company's website. To the extent that
minimum guaranteed impressions are not met, the Company defers recognition of
the corresponding revenues until the guaranteed impression levels are achieved.

         (e) Costs and expenses

         Costs and expenses have been classified according to their primary
functions within the enterprise in the following categories:

         Cost of revenues

         Cost of revenues primarily include cost of content for the Rediff
websites, editorial costs, printing and circulation costs for the India Abroad
newspaper, e-commerce marketplace related costs and related salaries. During the
fiscal year ended March 31, 2004, the Company wrote back certain old accruals,
which were no longer payable and which were earlier charged to costs of revenues
amounting to US$ 41,000.

         Sales and marketing

         Sales and marketing expenses primarily include employee compensation
for sales and marketing personnel, advertising and promotion expenses and
market research costs. During the fiscal years ended March 31, 2004 and March
31, 2006, the Company wrote back certain old accounts payable and accruals
amounting to US$663,000 and US$54,000 respectively, which were no longer
payable and which were earlier charged to sales and marketing expenses.

         Product development

         Product development costs primarily include internet communication
costs, software usage fees, software development expenses and compensation to
product development personnel. (See note 2(h)). Product development expenses
include bandwidth costs of US$660,166, US$896,478 and US$1,115,023 for the years
ended March 31, 2004, 2005 and 2006 respectively.


                                     F-9
<PAGE>

         During the fiscal year ended March 31, 2006, the Company wrote back
certain old accounts payable amounting to US$25,000, which were no longer
payable and which were earlier charged to product development expenses.

         General and administrative

         These costs primarily include employee compensation of administrative,
operations and supervisory staff whose time is mainly devoted to strategic and
managerial functions, depreciation, rent, insurance premiums, electricity,
telecommunication costs, legal and professional fees, valuation allowances and
other general expenses.

         During the fiscal years ended March 31, 2004 and March 31, 2006, the
Company wrote off certain old accruals amounting to US$234,000 and US$30,000
respectively, which were no longer payable and which were earlier charged to
general and administrative costs.

         (f) Cash and cash equivalents

         The Company considers all highly liquid investments with a remaining
maturity at the date of purchase of three months or less to be cash equivalents.
Cash and cash equivalents consist of cash on hand and cash on deposit with
banks.

         Cash and cash equivalents include short term bank deposits at March 31,
2005 and 2006, of US$8,777,756 and US$51,373,812 respectively, which have a
remaining maturity of less than one year, but which are redeemable without
penalty on demand.

         (g) Property, plant and equipment

         Property, plant and equipment are stated at cost. The Company computes
depreciation for all property, plant and equipment using the straight-line
method over the estimated useful lives of assets. The estimated useful lives of
assets are as follows:

Furniture and fixtures.................................    5 to 10 years
Computer equipment and software........................     3 to 5 years
Office equipment.......................................    5 to 10 years
Vehicles...............................................          8 years
Leasehold improvements.................................          6 years
Website development costs..............................          3 years

         (h)  Website development costs

         Costs incurred in the operations stage that provides additional
functions or features to the Company's website are capitalized and amortized
over their estimated useful life of three years. Maintenance expenses or costs
that do not result in new features or functions are expensed as product
development costs as incurred.

         (i) Goodwill and intangible assets

         The Company allocates excess purchase price over the historical cost
of businesses acquired to intangible assets and goodwill based on their fair
values.

         The Company tests the carrying balances of goodwill and intangible
assets that do not have a finite life for impairment on January 1 each year or
earlier upon the occurrence of a triggering event. The first step compares the
fair values of each reporting unit to its carrying amount, including goodwill.
If the fair value of each reporting unit exceeds its carrying amount, goodwill
is not considered to be impaired and the second step will not be required. If
the carrying amount of a reporting unit exceeds its fair value, the second step
compares the implied fair value of goodwill to the carrying value of a
reporting unit's goodwill. The implied fair value of goodwill is determined in
a manner similar to accounting for a business combination with the allocation
of the assessed fair value determined in the first step to the assets and
liabilities of the reporting unit. The excess of the fair value of the
reporting unit over the amounts assigned to the assets and liabilities is the
implied fair value of goodwill. This allocation process is only performed for
purposes of evaluating goodwill impairment and does not result in an entry to
adjust the value of any assets or liabilities. An impairment loss is recognized
for any excess in the carrying value of goodwill over the implied fair value of
goodwill.

         (j) Foreign currency translation

         The accompanying financial statements are reported in U.S. dollars. The
functional currency of the parent is the Indian Rupee ("Rs." or "Rupee") while
that of its subsidiaries is the U.S. Dollar. For the purposes of presenting the
consolidated financial statements, Rupees have been converted into U.S. dollars
for balance sheet accounts using the exchange rate in effect at the balance
sheet date, and for revenue and expense accounts using a weighted-average
exchange rate for the respective periods. The gains or losses resulting from
such translation are reported as other comprehensive income or loss, which is a
separate component of shareholders' equity. Such translation should not be
construed as representation that the Rupee amounts have been or could be
translated into U.S. dollars at any particular rate, or at all.

         Transactions in foreign currency are recorded at the original rates of
exchange in force at the time the transactions are effected. Monetary items
denominated in a foreign currency are restated using the exchange rates
prevailing at the date of the balance sheet. Exchange differences arising on
settlement of transactions and restatement of assets and liabilities at the
balance sheet date are recognized in operations.


                                     F-10
<PAGE>


         (k) Earnings/ Loss per share

         Basic earnings / loss per share from continuing operations and net
income/ loss has been computed by dividing the income/ loss from continuing
operations and net income/loss, respectively for the year by the weighted
average number of equity shares outstanding during the period, including
equity share equivalents for ADSs issued. Diluted earnings/ loss per share is
computed using the weighted average number of equity shares including equity
share equivalents for ADSs issued and dilutive potential equity shares
outstanding during the period, using the treasury stock method for options and
warrants, except where the results would be anti-dilutive. The determination
as to whether a potential equity share is anti-dilutive is based on the
income/ loss per share from continuing operations. The Company also reports
earnings/loss per ADS, where two ADSs are equal to one equity share.

         (l) Income taxes

         Income taxes consist of current income taxes and the change in the
deferred tax balances during the year. Deferred tax assets and liabilities are
recognized for each entity and taxing jurisdiction for future tax consequences
attributable to temporary differences between the carrying amounts of assets and
liabilities and their respective tax bases and operating loss carry-forwards,
measured using the enacted tax rates expected to apply in the years in which
such temporary differences are expected to be recovered or settled. The effect
of changes in tax rates is recognized in income in the period that includes the
enactment date. The measurement of deferred tax assets is reduced, if necessary,
by a valuation allowance for any tax benefits for which future realization is
uncertain.

         (m) Impairment or disposal of long-lived assets

         The Company evaluates its long lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of tangible
long lived assets may not be recoverable, the Company subjects such long lived
assets to a test of recoverability, based on the undiscounted cash flows
expected from use or disposition of such assets. Such events or circumstances
would include changes in the market, technological obsolescence, and adverse
changes in profitability or regulation. If the asset is impaired, the Company
recognizes an impairment loss based on the estimated fair values using
discounted cash flows and the carrying value of the asset. Assets to be disposed
of are reported at the lower of the carrying value or the fair value less the
cost to sell.

         (n) Stock based compensation

         The Company uses the intrinsic value method to account for the
compensation cost of stock options and awards granted to officers, employees
and retainers in full time service of the Company and non-employee directors
for their services as directors and the fair value method to account for the
compensation cost of stock options and awards granted to associates of the
Company. The Company also applies FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation - an interpretation of APB
Opinion No. 25" to account for its stock option plans. The Company has adopted
the pro forma disclosure provisions of SFAS 123 and SFAS 148 for its various
plans. Had compensation cost for the Company's officer, employee and director
stock based compensation plan been determined in a manner consistent with the
fair value approach the Company's net (loss) income and basic and diluted
(loss) earnings per share as reported would have been increased to the pro
forma amounts indicated below:


                                     F-11
<PAGE>


<TABLE>
<CAPTION>

                                                                   Years ended March 31,
                                                      2004                  2005                  2006
                                                      ----                  ----                  ----
<S>                                                   <C>                   <C>                     <C>

        Net (Loss) Income as
        reported.....................               US$(5,719,842)        US$(1,427,590)          US$1,212,857

        Add: Stock compensation
              expenses included in
              reported net income.....                        426                   448                   262
        Less: Total stock-based
              employee compensation
              expense determined under
              fair value based method
              for all awards..........                   (647,790)           (1,259,234)             (979,155)

        Adjusted pro forma............              US$(6,367,206)        US$(2,686,376)           US$ 233,964

        (Loss) Earnings per share -
        As reported...................
        Basic                                        Cents (45.00)         Cents (11.00)            Cents 8.99
                                                     -------------         -------------            ----------
        Diluted                                      Cents (45.00)         Cents (11.00)            Cents 8.81
                                                     -------------         -------------            ----------

        Adjusted pro forma............
        Basic                                        Cents (50.00)         Cents (21.00)            Cents 1.73
                                                     -------------         -------------            ----------
        Diluted                                      Cents (50.00)         Cents (21.00)            Cents 1.70
                                                     -------------         -------------            ----------
</TABLE>


         The fair value of each warrant is estimated on the date of grant using
the Black-Scholes model with the following assumptions:

                                                Years ended March 31,
                                          2004            2005           2006
        Dividend yield..............          0%             0%            0%
        Expected life...............     4 Years        4 Years     1-4 Years
        Risk free interest rates....          5%          4.23%         4.23%
        Volatility..................      112.6%        111.17%          104%

      See Note 15 - "Stock based compensation" for other proforma disclosures.

      See "Recent Accounting Pronouncements" below regarding the applicability
of the statement of financial accounting standards SFAS 123 R ("SFAS- 123R").

         (o) Allowances for doubtful accounts receivable and other recoverables

         Allowances are established for doubtful accounts receivable and for
other recoverables for estimated losses resulting from the inability of
customers to make contractually agreed payments. All receivables which are
outstanding for 180 days or more are provided for. Allowances are also set up
for a specific account receivable or other recoverable if the facts and
circumstances indicate that such account receivable or other recoverable is
unlikely to be collected.

         (p) Classification

         Certain prior years' balances have been reclassified to conform to the
current year's presentation. These have no effect on previously reported results
of operations or shareholders' equity.


                                     F-12
<PAGE>

3.       Discontinued operations and assets held for sale

         On April 8, 2004, Valucom sold its phone-card business, consisting
primarily of the "Valucom" brand, trademarks, websites, internally built
software, customer lists and certain hardware for US $ 500,000 to Worldquest
Networks, Inc. ("WQN"). WQN paid US $ 200,000 of the total consideration at
closing, the remaining US $ 300,000 was paid in twelve monthly installments of
US $ 25,000 commencing May 2004. In addition, the Company also sold its
inventory of prepaid identification numbers ("PINS") to WQN at its carrying
value on April 8, 2004, for an additional consideration of US $ 102,424.

         In accordance with SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the disposal of the phone-card business qualifies as
discontinued operations at March 31, 2004 and 2005. Hence, the results of
operations of the phone card business, as detailed below, are disclosed as
discontinued operations in the Company's Consolidated Statements of Operations.

<TABLE>
<CAPTION>
                                                                       Years ended March 31,
                                                   ---------------------------------------------------------------

                                                          2004                  2005                  2006
                                                   -------------------    ------------------    ------------------
<S>                                                        <C>                      <C>                       <C>
Operating revenues ............................          US$4,487,598             US$98,922                 US$ -
                                                   -------------------    ------------------    ------------------
(Loss) Income from operations before taxes
(after eliminating inter-company
transactions) (Including impairment
charges of US$ 1,866,380
for the fiscal year ended March 31, 2004) .....           (2,370,982)             (207,710)                   (-)
                                                   -------------------    ------------------    ------------------
(Loss) Income from discontinued operations ....        US$(2,370,982)          US$(207,710)               US$ (-)
                                                   -------------------    ------------------    ------------------
</TABLE>

         Upon approval of the plan of disposal in March 2004, the related
long-lived assets of the phone card business which were subsequently disposed
off were reported as held-for-sale and measured at their fair value less cost to
sell. The impairment charge of US$1,866,380 resulting from the write down of
goodwill and other assets have been reported as loss from discontinued
operations.

         Plant and equipment and inventory that were not transferred were
completely written off. The Company evaluated its phone card business reporting
unit for goodwill impairment. Since the fair value of the reporting unit, as
indicated by the sales price was lower than the carrying value, the Company
compared the book value of its goodwill to the implied fair value of the
goodwill and recorded a charge for the difference.

         The implied fair value of the goodwill was calculated as the fair value
of the reporting unit (sales price) less the fair value of the assets and
liabilities included in the reporting unit.

4.    Prepaid Expenses and Other Current Assets

         Prepaid expenses and other current assets comprise of:

                                                     As of March 31,
                                                 2005             2006
  Prepaid expenses ........................   US$345,197       US$659,103
  Cost relating to shelf registration .....      626,061                -
  Vendor advances .........................      254,946           10,741
  Rent deposits............................      437,418          294,317
  Other advances and deposits..............      141,731          139,861
  Loans to employees.......................       36,706           73,885
  Accrued interest.........................       39,816          487,771
                                            ------------   --------------
                                            US$1,881,875    US$ 1,665,678
                                            ============   ==============


                                     F-13
<PAGE>


5.     Property, Plant and Equipment

         Property, plant and equipment comprise of:

                                                       As of March 31,
                                                       ---------------
                                                   2005                2006
                                                   ----                ----
Furniture and fixtures........................   US$595,556          US$646,506
Computer equipment and software...............    8,467,908          11,986,472
Office equipment..............................      322,472             334,860
Vehicles......................................      368,415             275,602
Leasehold improvements........................      197,493             286,705
Deferred website development costs............      281,636             675,685
Capital work in progress......................       63,363             270,770
                                               ------------        ------------
Property, plant and equipment, cost...........   10,296,843          14,476,600
Accumulated depreciation and amortization.....   (7,739,090)         (8,944,928)
                                               ------------        ------------
Property, plant and equipment, net............ US$2,557,753        US$5,531,672
                                               ============        ============

         As of March 31, 2005 and March 31, 2006, the Company had aggregate
commitments for capital expenditures of approximately US$0.45 million and
US$0.11 million respectively.

6.       Goodwill

         The Company's goodwill amounts as of March 31, 2005 and 2006 arise from
its acquisition of India Abroad. The goodwill related to India Abroad has been
allocated to the U.S. Publishing reporting unit which is also the reporting
segment. The Company's business in India has been treated as a single reporting
unit, and since none of the components in India benefited from the synergies
from acquisitions in the United States, no goodwill was allocated to this
reporting unit. The segment realignment did not effect the determination of
reporting units or the allocation of goodwill. The Company has tested each
reporting unit for impairment of goodwill annually, or earlier upon the
occurrence of a triggering event.

         India Abroad

         In the fourth quarter of fiscal years 2004, 2005 and 2006 the Company
performed its annual impairment test for goodwill of India Abroad. Management
determined the fair value of the business using the discounted cash flow method
in all years and established that the fair value of the reporting unit exceeded
its carrying value indicating that goodwill was not further impaired.

         Valucom

         On April 8, 2004 the Company sold the phone card business for a
consideration of US$ 500,000. During the fiscal year ended March 31, 2004, the
Company recorded an impairment charge of US$ 1,661,222 for the Valucom goodwill
(included in the loss from discontinued operations), based on the sale value of
the phone card business.


                                     F-14
<PAGE>

7.       Other Assets

         Other assets comprise of rental deposits which at the balance sheet
date are due after more than one year and the non current portion of loans to
employees. Other assets also include an amount of US$67,955 representing a
recoverable from the insurance carrier of the Company's D&O policy (See Note
18).

8.       Related Party Transactions

         The Company's principal related parties are its founder shareholders
and companies that the founder shareholders control. The Company enters into
transactions with such related parties in the normal course of business.

         Six of the Company's largest shareholders beneficially hold
approximately 61% of the Company's equity share capital in aggregate. As a
result, such shareholders, if they were to act collectively, could exercise
control or significantly influence most matters requiring shareholder approval,
including significant corporate transactions.

         Included in the determination of net (loss) income are the following
significant transactions with related parties:

                                                   Years ended March 31,
                                                   ---------------------
                                              2004        2005        2006
                                              ----        ----        ----
    Advertising revenues .................. US$11,537   US$53,991   US$43,299

     Balances with related parties include:
                                                           As of March 31,
                                                         2005          2006
                                                         ----          ----

    Receivable for advertising income............... US$25,156      US$25,004
    Loans to officers............................... US$28,918      US$13,507


         The Company grants unsecured loans to employees for acquiring assets
such as housing property and vehicles and also for other personal purposes.
These are recovered from the employees' salaries. The rates at which the loans
are made to employees vary between 0% to 2%.

          The required repayments of loans by employees are as follows:

      Years ended March 31,
      ---------------------

    2007...........................................         US$59,037
    2008...........................................            40,368
    2009 ..........................................            19,570
    2010                                                         5165
    2011and thereafter.............................             6,135
                                                    ------------------
    Total payments.................................        US$130,274
                                                    ==================

9.       Shareholders' Equity

         On August 9, 2004, the authorized share capital of the Company was
increased from 20,000,000 equity shares to 24,000,000 equity shares.

         During the year ended March 31, 2006, the Company issued 3,026,480 ADSs
representing 1,513,240 equity shares on account of Company's follow on offering
in November 2005 at US$ 15.86 per ADS, the aggregate proceeds of which were US$
47,999,973 (net proceeds of US$ 44,074,195 after deducting issuance costs of US$
3,925,778).

         During the fiscal year ended March 31, 2006, the Company also issued
292,620 ADSs representing 146,310 equity shares on account of the exercise of
stock options pertaining to the 2002 and 2004 Stock Option plans at various
grant prices, the aggregate proceeds of which were US$ 1,071,387.


                                     F-15
<PAGE>

10.      Retirement Benefits

         Gratuity

         The Company provides for gratuity, an unfunded defined benefit
retirement plan covering eligible employees in India. This plan provides for a
lump-sum payment to be made to vested employees at retirement, death or
termination of employment in an amount equivalent to 15 days basic salary,
payable for each completed year of service. These gratuity benefits vest upon an
employee's completion of five years of service.

         The following tables set out the status of the gratuity plans and the
amounts recognized in the Company's financial statements for the fiscal years
ended March 31, 2004, 2005 and 2006. The measurement date used is March 31 of
the relevant fiscal year.

<TABLE>
<CAPTION>

                                                                            Years ended March 31,
                                                               2004                  2005                 2006
                                                        -------------------   -------------------   ------------------
<S>                                                               <C>                   <C>                 <C>
Change in benefit obligation
Benefit obligation at the beginning of the year.....            US$66,439             US$88,021            US$96,524
Actuarial(gain) loss....................... ........               (3,042)               (6,229)               5,618
Service cost........................................               14,875                16,923               21,479
Interest cost.......................................                5,350                 5,675                7,210
Benefits paid.......................................               (2,724)               (7,647)             (22,942)
Effect of exchange rate changes.....................                7,123                  (219)              (2,210)
                                                        -------------------   -------------------   ------------------
Benefit obligation at the end of the year...........            US$88,021             US$96,524           US$105,679
Unrecognized net actuarial loss (gain)..............                2,229                 8,517                2,976
 ...................................................    -------------------   -------------------   ------------------
Accrued liability...................................            US$90,250            US$105,041           US$108,655
                                                        -------------------   -------------------   ------------------

         Net gratuity cost for the years ended March 31, 2004, 2005 and 2006
comprise of the following:

                                                                            Years ended March 31,
                                                              2004                  2005                  2006
                                                        ------------------    ------------------    ------------------
Service cost.....................................              US$14,875             US$16,923             US$21,479
Interest cost....................................                  5,351                 5,675                 7,210
Recognized net actuarial (gain) loss.............                 (3,042)               (6,229)                5,618
                                                        ------------------    ------------------    ------------------
Net gratuity cost................................             US$ 17,184             US$16,369             US$34,307
                                                        ------------------    ------------------    ------------------
</TABLE>

         The assumptions used in accounting for gratuity in the years ended
March 31, 2004, 2005 and 2006 were as follows:

<TABLE>
<CAPTION>
                                                                   Years ended March 31,
                                                   2004                      2005                      2006
                                                  -------                   ------                    ------
<S>                                                 <C>                       <C>                       <C>
Discount rate                                       7%                        8%                        8%

Rate of increase in compensation            8% for first 2 years      8% for first year         8% for first 2 years
                                              and 5% thereafter       and 6% thereafter          and 5% thereafter
</TABLE>

         The Company assesses these assumptions with its projected long-term
plans of growth and prevalent industry standards. Unrecognized actuarial gain/
loss is amortized over the average remaining service period of the active
employees expected to receive benefits under the Plan.


                                     F-16
<PAGE>


         The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid.

                Years ending March 31,
                ----------------------

                2007 ..............................     US$9,303
                2008 ..............................    US$10,222
                2009 ..............................    US$12,127
                2010 ..............................    US$16,566
                2011 ..............................    US$20,982
                2012-2016..........................   US$111,343

         The expected benefits are based on the same assumptions used to measure
the Company's benefit obligations as of March 31, 2006.

         Provident Fund

         Employees based in India and the Company each contribute at the rate of
12% of salaries to a provident fund maintained by the Government of India for
the benefit of such employees. The provident fund is a defined contribution
plan. Accordingly, the Company expenses such contributions as incurred. Amounts
contributed by the Company to the provident fund, in the aggregate, were
US$77,677, US$87,710 and US$ 113,222 for the years ended March 31, 2004, 2005
and 2006 respectively.

         Compensated absences

         The Company provides for the cost of vacation earned based on the
number of days of unutilized leave at each balance sheet date.

11.      Operating Leases

         The Company leases office space, computer equipment, high-speed
telephone lines and residential apartments for employees under various operating
leases. Operating lease expense that has been included in the determination of
the net (loss) income is as follows:

<TABLE>
<CAPTION>
                                                              Years ended March 31,
                                                              ---------------------
                                                   2004                2005               2006
                                                   ----                ----               ----
<S>                                           <C>                <C>                 <C>
Office space ............................      US$452,077          US$436,798         US$443,955
Computers and equipments ................          29,214              18,378             36,863
Telecom leased lines ....................         504,450                   -                  -
Residential apartments for employees ....         113,549             110,865            106,079
                                             ------------        ------------       ------------
Total operating lease expense ...........    US$1,099,290          US$566,041         US$586,937
                                             ============        ============       ============
</TABLE>

         The minimum annual rental commitments under the above operating leases
that have initial or remaining terms in excess of one year are as follows:

               As at March 31,
               ---------------

               2007 ..............................   US$477,529
               2008 ..............................   US$295,998
               2009 ..............................     US$5,503
               2010 ..............................            -
               2011 and thereafter ...............            -
               Total payments ....................   US$779,040


                                     F-17
<PAGE>


12.      Income Taxes

         The income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
                                                                         Years ended March 31,
                                                               2004               2005               2006
                                                               ----               ----               ----
<S>                                                                <C>               <C>               <C>
     Current taxes -- all foreign (State tax)..........          US$4,862          US$37,994         US$17,603
     Deferred taxes, net of allowance.................                 --                 --                --
                                                         -----------------   ----------------    --------------
     Net income tax expense (benefit).................           US$4,862          US$37,994         US$17,603
                                                         =================   ================    ==============
</TABLE>

         The tax effects of significant temporary differences that resulted in
deferred tax assets and liabilities are as follows:

                                                         As of March 31,
                                              ---------------------------------
                                                  2005               2006
                                                  ----               ----
   Depreciation and amortization............   US$2,693,150       US$3,237,131
   Bad debt allowance.......................        494,864            605,047
   Net operating loss carry forwards........     10,538,594         10,537,097
   Retirement benefits......................         70,011             76,385
   Others...................................            250              7,222
                                              --------------     --------------
                                                 13,803,869         14,462,882
   Less: Valuation allowance................    (13,803,869)       (14,462,882)
                                              --------------     --------------
   Net deferred tax asset...................   US$       --       US$       --
                                              ==============     ==============


         The Company increased the valuation allowance by US$1,704,681 for the
year ended March 31, 2004 and decreased it by US$ 942,469 for the year ended
March 31, 2005. The Company increased the valuation allowance by US$659,013 for
the year ended March 31, 2006 mainly on account of increase in unabsorbed
depreciation and amortization as compared to the previous year.

         The Company has not generated any taxable income in India to date, and
therefore has not had to pay any Indian income tax since its inception. The
Company has provided a full valuation allowance against the deferred tax asset
since it is uncertain that the asset will be recovered. The Company's net
operating loss carry forwards for its Indian operations aggregating
approximately US$17.1 million as of March 31, 2006 will expire between April 1,
2006 and March 31, 2014. The Company also has unabsorbed depreciation carry
forwards as at March 31, 2006 aggregating to approximately US$9.3 million.

         Recoverable income taxes mainly consist of tax deducted at source on
income from advertising services and interest income, which the Company will
claim as refund.

         As of March 31, 2006, ValuCom has net operating loss carry forwards
available to offset future federal taxable income of US$2,953,000, which expire
in years 2021 through 2025.

         As of March 31, 2006, Rediff Holdings, Inc., has net operating loss
carry forwards of approximately US$7,655,000, for federal income tax purposes,
which expire in years 2020 through 2026.

         Realization of the future tax benefits related to the deferred income
asset is dependent on many factors, including the Company's ability to generate
taxable income within the net operating loss carry forward period. Management
has considered these factors and believes that a full valuation allowance is
required for each of the periods presented.

13.      Segments

         The Company has two reportable segments, namely, the India Online
business and the U.S. Publishing business.

         (i)   India Online business primarily includes revenues from online
               advertising and fee based services. Online advertising includes
               advertisements and sponsorships and designing and managing
               customers' websites. Fee based services include e-commerce,
               subscription services and wireless short messaging services.


                                     F-18
<PAGE>


         (ii)  U.S. Publishing business primarily includes subscription and
               advertising revenues from the publication of India Abroad, a
               weekly newspaper published in the United States and Canada, and
               India in New York. It also includes the advertising revenues of
               Rediff India Abroad, the website catering to the Indian
               community in the U.S.A.

         As discussed in Note 3, on April 8, 2004, the Company sold the phone
card business and has reported the results of the phone card business as
discontinued operations. Accordingly, segmental information for the phone card
business is not presented as the Company currently operates in above two
business segments.

         During the year ended March 31, 2004, the Company discontinued its
earlier practice of allocating the operating expenses to its segments as
management does not use this information to measure the performance of these
operating segments. The Company believes that allocating these expenses is no
longer meaningful in evaluating segment performances since the Chief Operating
Decision Maker's (the Company's Chairman and Managing Director) measure for
segment results is the profits of the segment before operating expenses.

         Following are the segment results and segment assets for the years
ended March 31, 2004, 2005 and 2006.

<TABLE>
<CAPTION>

                                                    Years ended March 31,
                                                    ---------------------
                                        2004                                                     2005
                 India Online     U.S. Publishing                         India Online     U.S. Publishing
                   Business          Business             Total             Business           Business              Total
                 ------------     ---------------       ---------         ------------     ----------------        ----------
<S>                  <C>                <C>                 <C>                <C>               <C>                   <C>

Revenues from
external
customers:

Advertising        US$ 2,184,411      US$ 5,129,229       US$ 7,313,640      US$ 4,135,225     US$ 5,567,102       US$ 9,702,327
Fee based
services               1,451,772            681,191           2,132,963          2,421,095           503,242           2,924,337

Inter segment
revenues:              3,636,183          5,810,420           9,446,603          6,556,320         6,070,344          12,626,664


Advertising               31,611             34,000              65,611              6,353                 -               6,353
Total revenues         3,667,794          5,844,420           9,512,214          6,562,673         6,070,344          12,633,017
Cost of
revenues
-Third-party           1,130,373          3,608,029           4,738,402          1,593,218         3,519,906           5,113,124


-Inter segment                 -                  -                   -                  -                 -                   -
Total cost of
revenues               1,130,373          3,608,029           4,738,402          1,593,218         3,519,906           5,113,124

Segment
Results            US$ 2,537,421      US$ 2,236,391       US$ 4,773,812      US$ 4,963,102     US$ 2,550,438       US$ 7,519,893

Segment Assets    US$ 13,935,845     US$ 10,220,059      US$ 24,155,904     US$ 16,270,665     US$ 9,195,006      US$ 25,465,671

[TABLE CONTINUED]


                              Years ended March 31,
                              ---------------------
                                               2006
                          India Online   U.S. Publishing
                          Business           Business            Total
                          ------------   ---------------       ---------
Revenues from
external
customers:

Advertising                US$ 8,502,520     US$ 5,931,028      US$ 14,433,548
Fee based
services                       3,672,407           594,725           4,267,132
                              12,174,927         6,525,753          18,700,680
Inter segment
revenues:


Advertising                        7,029                 -               7,029
Total revenues                12,181,956         6,525,753          18,707,709
Cost of
revenues
-Third-party                   1,593,894         3,445,539           5,039,434


-Inter segment                         -                 -                   -
Total cost of
revenues                       1,593,894         3,445,539           5,039,434

Segment
Results                   US$ 10,588,062     US$ 3,080,214      US$ 13,668,276

Segment Assets            US$ 64,417,947     US$ 9,563,787      US$ 73,981,735

</TABLE>

         The following is a reconciliation of the segment results to the (loss)
income from continuing operations before income taxes of the Company for the
years ended March 31, 2004, 2005 and 2006.

                                         Years ended March 31,
                                         ---------------------
                                 2004               2005               2006
                                 ----               ----               ----
 Segment Result............. US$ 4,773,812     US$ 7,519,893    US$ 13,668,276
 Inter segment expenses ....        65,611             6,353              7029
 Operating expenses.........     7,927,067         9,226,711        12,682,967
 Other (Loss) Income .......      (125,132)          531,285           252,181
                                  --------           -------           -------
 (Loss) Income from
 continuing operations
 before income taxes........ US$(3,343,998)    US$(1,181,886)     US$1,230,460


                                     F-19
<PAGE>


         The following is a reconciliation of the segment assets to the total
assets as at March 31, 2005 and 2006.


                                               As at March 31,
                                         2005                     2006
 India online business           US$ 16,270,665                US$64,417,947
 US Publishing business               9,195,006                    9,563,787
                                 ----------------------    -------------------
                                     25,465,671                   73,981,735
 Phone card business                    224,741                      128,539
                                 ----------------------    -------------------
 Total assets                    US$ 25,690,412                US$74,110,273


      Revenues derived from customers are as follows:
<TABLE>
<CAPTION>

                                                               Years ended March 31,
                                                               ---------------------
                                                    2004                 2005                   2006
                                                    ----                 ----                   ----
<S>                                                <C>                <C>                 <C>
        United States.......................     US$5,377,198       US$5,352,176        US$5,853,947
        India...............................        3,665,317          6,898,291          12,536,571
        Rest of the world...................          404,088            376,197             310,162
                                                ------------      -------------       -------------

        Total revenues......................     US$9,446,603      US$12,626,664       US$18,700,680
                                                 ------------      -------------       -------------


     Net property, plant and equipment by location is as follows:

                                                                 As of March 31,
                                                    ---------------------------------------
                                                          2005                   2006
                                                    ----------------       ----------------
          United States and Canada ................    US$ 207,310           US$ 205,760
          India ...................................      2,350,443             5,325,912
                                                    ----------------       ----------------
          Total ...................................  US$ 2,557,753         US$ 5,531,672
                                                    ----------------      -----------------
</TABLE>

14.     Concentration of credit risk

         Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents
and accounts receivable. The Company maintains a significant portion of its
cash and cash equivalents in Indian Rupees with reputed banks in India.

         The Company's advertising revenues from the India Online business are
primarily derived from large corporate clients in India. Advertising revenues
from the U.S. Publishing business are primarily derived from corporate clients
and retail customers in the United States and Canada. The Company's fee based
revenues from the India Online business and U.S. Publishing business are
primarily derived from retail customers in India, the United States and Canada.
These do not expose the Company to any material concentrations of credit risk.

         Significant clients

         No single client accounted for 10 percent or more of the total revenues
for the years ended March 31, 2004, 2005 and 2006. As of March 31, 2005 and
2006, no one customer accounted for 10 percent or more of the accounts
receivable balance.

15.      Stock-based compensation

         The Company uses the intrinsic value method specified under APB Opinion
No. 25 to account for the compensation cost of stock options and awards granted
to officers, employees and retainers in full time service of the Company and
non-employee directors for their services as directors and the fair value method
specified in SFAS 123 to account for the compensation cost of stock options and
awards granted to associates of the Company. The Company also applies FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25" to account for its stock
option plans. Pro forma disclosures, as applicable, required under SFAS No. 123
and SFAS No. 148 have been provided as under:


                                     F-20
<PAGE>


         1999 Stock Option Plans

         On February 22, 1999, the Company approved the Employee Stock Option
Plan 1999 ("1999 ESOP") and the Associate Stock Option Plan 1999 ("1999 ASOP")
(collectively "Option Plans") which cover present and future employees,
retainers in full time service of the Company and certain associates of the
Company. The 1999 ESOP and 1999 ASOP have similar terms. Under the terms of the
1999 ESOP, a committee of the board may award stock options to eligible
employees in the form of warrants. Such options vest at the rate of 25% on each
successive anniversary of the grant date, until fully vested. Under the terms of
the 1999 ASOP, a committee of the board may award stock options to eligible
associates in the form of warrants. Such warrants vest at the rates set forth in
each warrant.

         Each allotted warrant carries with it the right to purchase a specified
number of the Company's equity shares at the exercise price during the exercise
period, which expires five years from the date of grant.

         The exercise price is determined by the awarding committee, and is
intended to be at least the fair value of the Company's equity shares on the
date of the grant.

         Under the Option Plans, the Company reserved 280,000 equity shares for
the 1999 ESOP and 198,000 equity shares for the 1999 ASOP, respectively. The
Option Plans also permit the Board of Directors to reserve additional warrants
under either plan to be issued to eligible parties on such terms and conditions
as may then be decided by the board at its absolute discretion.

         The Company has elected to use the intrinsic value method of APB
Opinion No. 25 to account for its stock-based compensation plans regarding
options awarded to officers, employees, retainers in full time service of the
Company and non-employee directors for their services as directors, and the fair
value method specified in SFAS No. 123 in respect of the options awarded to
associates of the Company.

         For the years ended March 31, 2004, 2005 and 2006, the Company
recognized a compensation cost of US$426 and US$448, US$262 in respect of stock
options granted to associates of the Company in accordance with SFAS 123.

         Activity in the warrants available to be granted under the 1999 ESOP is
as follows:

<TABLE>
<CAPTION>

                                                             Shares available to be granted as options
                                                                       Years ended March 31,

Employee Stock Option Plan 1999:                                   2004            2005           2006
                                                                   ----            ----           ----
<S>                                                                <C>              <C>           <C>
Available to be granted, beginning of year.............            18,250           33,725        11,475
Forfeited..............................................            22,975            7,750           NIL
Options granted........................................           (7,500)         (30,000)           NIL
                                                                  -------         --------        ------
Available to be granted, end of year...................            33,725           11,475        11,475
                                                                  =======         ========        ======

         Activity in the warrants of the 1999 ESOP for the years ended March
31, 2004, 2005 and 2006 is as follows:

                                                         Years ended March 31,
                 -----------------------------------  -----------------------------   -------------------------------
                              2004                              2005                                2006
                 -----------------------------------  -----------------------------   --------------------------------
                  Shares                               Shares                              Shares
                  arising                              arising                             arising
                  out of                               out of                              out of      Weighted average
                  options    Weighted average price    options   Weighted average price    options          price
                  -------    ----------------------    -------   ----------------------    -------     -----------------

Outstanding at
the beginning
of the year.....    261,750   US$   6.49    Rs.  308     246,275     US$6.92     Rs. 300      92,150    US$6.45   Rs. 281
Granted.........      7,500    US$ 10.32      Rs 474      30,000    US$10.78     Rs. 500          --         --        --
Lapsed .........         --           --          --   (176,375)     US$6.13     Rs. 267    (46,150)  US$ 10.43   Rs. 465

Forfeited.......   (22,975)   US$   9.67     Rs  444     (7,750)     US$8.29     Rs. 362          --         --        --
Outstanding at
the end of the
year............    246,275   US$   6.92     Rs  300      92,150     US$6.45     Rs. 281      46,000   US$ 9.49   Rs. 423

</TABLE>


                                     F-21
<PAGE>


         Activity in the warrants available to be granted under the 1999 ASOP
is as follows:

<TABLE>
<CAPTION>

                                                                  Shares available to be granted as options
                                                              --------------------------------------------------
                                                                            Years ended March 31,
                                                              --------------------------------------------------
    Associate Stock Option Plan 1999:                                 2004            2005             2006
                                                                      ----            ----             ----

<S>                                                                 <C>             <C>               <C>
    Available to be granted, beginning of year...........           109,650         109,650           103,650
    Forfeited............................................                --              --                --
    Options granted......................................                --         (6,000)                --
    Available to be granted, end of year.................           109,650         103,650           103,650
</TABLE>

         Activity in the warrants of the 1999 ASOP for the years ended March
31, 2004, 2005 and 2006 is as follows:

<TABLE>
<CAPTION>

                                                          Year ended March 31,

                              2004                             2005                            2006
                    Shares          Weighted        Shares           Weighted        Shares           Weighted
                    arising         average         arising          average         arising          average
                      out            price            out             price            out            price
                      of                              of                               of
                    options                         options                          options

<S>                 <C>         <C>        <C>     <C>         <C>          <C>    <C>        <C>         <C>

Outstanding at
the beginning of
the year........    88,350    US$9.38   Rs 446     88,350    US$10.27   Rs. 446    35,000   US$4.67   Rs. 204
Granted.........        --         --       --      6,000    US$15.11   Rs. 659        --        --        --

Lapsed .........        --         --       --    (59,350)   US$13.81   Rs. 610        --        --        --

Forfeited.......        --         --       --         --          --        --        --        --        --
Outstanding at
the end of the
year...........     88,350   US$10.27   Rs 446     35,000     US$4.67   Rs. 204    35,000   US$4.56   Rs. 204

</TABLE>

         2002 Stock Option Plan

         In January 2002 the Company's Board of Directors approved the 2002
Stock Option Plan ("2002 plan"), which provides for the grant of stock options
to the Company's employees. All options under this plan are exercisable for the
ADSs of the Company. The Company has elected to account for the 2002 plan using
the intrinsic value method of APB Opinion No. 25. Unless terminated sooner,
this plan will terminate automatically in January 2012. A total of 280,000 of
the Company's equity shares are currently reserved for issuance pursuant to
2002 plan.

         Under the terms of the 2002 plan, the board or a committee or a
sub-committee of the board will determine and authorize the grant of options to
eligible employees. Such options vest at the rates set forth in each award.
Each option grant carries with it the right to purchase a specified number of
the Company's ADSs at the exercise price during the exercise period, which
expires ten years from the date of grant. The exercise price is determined by
the board (or a committee or a sub-committee of the board) and shall be no more
than 110% of the fair market value and no less than 50% of the fair market
value on the date of the grant.

         For the 2002 plan, the Company had, during the fiscal year ended March
31, 2003, obtained necessary approvals from regulators in India. During the
fiscal year ended March 31, 2004, the Company made appropriate filings with the
SEC prior to the first exercise date of the options granted under the 2002
plan.


                                     F-22
<PAGE>


         Activity in the warrants available to be granted under the 2002 plan
is as follows:

<TABLE>
<CAPTION>

                                                               Shares available to be granted as options
                                                                         Years ended March 31,

      ADS linked Employee Stock Option Plan 2002:                    2004            2005           2006
<S>                                                                   <C>            <C>            <C>
      Available to be granted, beginning of year............          59,500         12,750         7,125
      Forfeited ............................................          69,250          4,875         5,875
      Options granted.......................................        (116,000)       (10,500)           --
                                                                  -----------      ---------      --------
      Available to be granted, end of year .................          12,750          7,125        13,000
                                                                  ===========      =========      ========
</TABLE>

         Activity in the warrants of the 2002 plan for the fiscal year ended
March 31, 2004, 2005 and 2006 is as follows:

<TABLE>
<CAPTION>

                                                             Years ended March 31,
                                          2004                         2005                        2006

                                Shares      Weighted          Shares       Weighted      Shares       Weighted
                              arising out   average        arising out     average     arising out    average
                              of options     price         of options       price      of options      price
                              ----------     -----         ----------       -----      ----------      -----

<S>                              <C>          <C>            <C>            <C>          <C>           <C>
Outstanding at the
beginning of the year.......     220,500    US$2.26          235,025      US$4.64        188,025     US$5.22
Granted.....................     116,000    US$7.75           10,500     US$10.98             --          --
Forfeited ..................     (69,250)   US$2.28           (4,875)     US$2.26         (5,875)    US$2.28
Exercised ..................     (32,225)   US$2.28          (52,625)     US$5.53        (94,400)    US$5.38
                               ----------   --------        ---------    --------       ----------   --------
Outstanding at the endof
the year ...................     235,025    US$4.64          188,025     US $5.22         87,750     US$5.26
                               ----------   --------        ---------    --------       ----------   --------
</TABLE>

         2004 Stock Option Plan

         In June 2004, the Company's Board of Directors approved the 2004 Stock
Option Plan ("2004 plan"), which provide for the grant of stock options to the
Company's employees. All options under this plan are exercisable for the ADSs
of the Company. The Company has elected to account for the 2004 plan using the
intrinsic value method of APB Opinion No. 25. Unless terminated sooner, this
plan will terminate automatically in January 2014. A total of 358,000 of the
Company's equity shares are currently reserved for issuance pursuant to 2004
plan.

         Under the terms of the 2004 plan, the board or a committee or a
sub-committee of the board will determine and authorize the grant of options to
eligible employees. Such options vest at the rates set forth in each award.
Each option grant carries with it the right to purchase a specified number of
the Company's ADS's at the exercise price during the exercise period, which
expires ten years from the date of grant. The exercise price is determined by
the board (or a committee or a sub-committee of the board) and shall be no more
than 110% of the fair market value and no less than 50% of the fair market
value on the date of the grant.

         For the 2004 plan, the Company has obtained necessary approvals.
During the fiscal year ended March 31, 2005, the Company made appropriate
filings with the SEC prior to the first exercise date of the options granted
under the 2004 plan.

         Activity in the warrants available to be granted under the 2004 plan
is as follows:

<TABLE>
<CAPTION>

                                                                             Shares available to be granted
                                                                                      as options
                                                                                 Years ended March 31,

                   ADS linked Employee Stock Option Plan 2004:                    2005              2006
                                                                                  ----              ----
<S>                                                                             <C>                <C>
        Available to be granted, beginning of year...............               358,000            73,500
        Forfeited................................................                     -            47,125
        Options granted..........................................              (284,500)           (5,100)
                                                                               ---------         ---------
        Available to be granted, end of year.....................                73,500           115,525
                                                                               =========         =========
</TABLE>


                                     F-23
<PAGE>


         Activity in the warrants of the 2004 plan for the fiscal year ended
March 31, 2005 and 2006 is as follows:

<TABLE>
<CAPTION>

                                                      Year ended March 31, 2005     Year ended March 31, 2006
                                                        Shares        Weighted        Shares        Weighted
                                                     arising out      average      arising out       average
                                                      of options       Price        of options        price
                                                      ----------       -----        ----------        -----

<S>                                                    <C>            <C>             <C>             <C>
Outstanding at the beginning of the year......                -              -        284,500       US$ 10.84
Granted.......................................          284,500       US$10.84          5,100       US$ 14.68
Forfeited.....................................                -              -        (47,125)      US$ 10.78
Exercised.....................................                -              -        (51,910)      US$ 10.86
Outstanding at the end of the year............          284,500      US$ 10.84        190,565       US$ 10.74
</TABLE>


                                     F-24
<PAGE>


         The following table summarizes information about stock options
outstanding as at March 31, 2006:

<TABLE>
<CAPTION>

                                                                  Options Outstanding
                                          -------------------------------------------------------------------------
                                            Number of            Weighted
            Range of Exercise Price          shares              average
                                            arising out         remaining              Weighted average
                                            of options        contractual life              Price
                                            ----------        ----------------              -----
<S>               <C>                            <C>            <C>               <C>                  <C>
                US$ 2.41 - 2.45                 87,125         0.66 years        US$    2.45          Rs.  109.21
                US$ 5.89 - 9.08                 21,875         1.25 years        US$    8.21          Rs.  366.47
                US$10.63 - 14.33               240,815         2.27 years        US$   11.24          Rs.  501.23
                US$14.77 - 15.27                 9,500         2.51 years        US$   14.97          Rs.  667.70

</TABLE>

16.      Fair value of financial instruments

         The carrying amounts for cash, cash equivalents, short term bank
deposits, accounts receivable, accounts payable and bank overdrafts approximate
their fair values due to the short maturity of these instruments.

17.      Earnings/ Loss per share and ADS

         A reconciliation of the numerators and denominators used in the
computation of the basic and diluted loss/earnings per equity share has not
been provided for the years ended March 31, 2004 and 2005, since 319,542 and
304,957 stock options outstanding as on March 31, 2004 and 2005 respectively,
which could potentially dilute the basic EPS in the future were anti dilutive
in those years.

         For the year ended March 31, 2006, the following table sets forth the
computation of basic and diluted income per share and ADS:

                                                      Year ended March 31, 2006
        Numerator:
        Net Income                                           US$ 1,212,857
        ----------                                           -------------
        Denominator:
        Weighted average equity shares                          13,487,212

        Denominator for basic calculations                      13,487,212
        ----------------------------------                      ----------
        Weighted average effect of dilutive shares:
        Employee Stock Options                                     276,778

        Denominator for diluted calculations                    13,763,989
        ------------------------------------                    ----------

        Earnings per share   - basic                            Cents 8.99
                             - diluted                          Cents 8.81
        Earnings per ADS     - basic                            Cents 4.50
                             - diluted                          Cents 4.41

18.      Commitments and contingencies

         Litigation

(a) On April 16, 2001, the Company, four of its officers and directors, and a
group of investment banks that acted as underwriters (the "Underwriter
defendants") in the Company's June 2000 initial public offering (the "IPO") and
listing of ADSs were named as defendants in the legal action of Khanna v.
Rediff.com India Ltd. et al., a class action lawsuit filed in the United States
District Court for the Southern District of New York. Plaintiffs in Khanna
allege that the Company's registration statement filed with the SEC contained
misleading statements and omissions in violation of the U.S. Securities Act of
1933, as amended ("Securities Act"), the U.S. Securities Exchange Act of 1934,
as amended ("Exchange Act") and SEC Rule 10b-5. The plaintiff class in this
lawsuit has been defined as all persons who purchased ADSs from the time of the
IPO through April 14, 2001 and seeks unspecified damages. Subsequent to the
filing of the Khanna Action, several other actions have been filed against the
Company and the other defendants propounding substantially the same
allegations. All the cases have been consolidated before a single judge in the
United States District Court for the Southern District of New York.


                                     F-25
<PAGE>


         On May 11, 2001, the Company received from the Underwriter defendants
a demand for indemnification of the underwriters' legal fees and liabilities.
The Company's Board of Directors also has resolved to indemnify its officers
and directors named as defendants against their legal fees and liabilities, to
the extent permitted under Indian law. At the time of the IPO, the Company
purchased Directors & Officers Liability Insurance, ("the D&O Policy"),
providing coverage against federal securities law claims. The D&O Policy
includes coverages for the Company's cost of defending the class action
lawsuit, indemnification liabilities to its officers and directors, and
indemnification liabilities to the Underwriter defendants. The coverage of the
D&O Policy is denominated in Indian Rupees, but the policy proceeds are payable
in United States dollars. Based on Reserve Bank of India rate at March 31,
2006, the face amount of the D&O Policy is approximately US$20.04 million. The
proceeds of the D&O Policy are available to satisfy any judgment against the
Company, or any judgment against persons whom the Company is obligated to
indemnify, will be reduced by the amount of the legal fees and associated
expenses in the defense of the Company, the individual defendants and the
underwriters which are paid from the D&O Policy. The coverage of the D&O Policy
for the payment of legal fees, cost of defense and judgment, if any, is subject
to a retention of approximately US$250,000 (based on the Reserve Bank of India
rate at March 31, 2006), which must be satisfied by the Company before the D&O
Policy proceeds would be available to the Company.

         During the fiscal year ended March 31, 2002, the Company recorded a
recoverable from the Insurance carrier of US$67,955 paid by the Company towards
legal fees in excess of the self-insured retention for this case. The insurance
carriers have informed the Company that this amount would be paid on the
settlement of the cases. The D&O Policy contains various exclusions, which, if
met, may result in the denial of insurance coverage. The Company has been
advised by the insurance carriers who wrote the D&O Policy that they are not
currently aware of any facts or circumstances that would cause any of the
exclusions to apply, but that the carriers have reserved their rights to claim
that the exclusions do apply if any such facts or circumstances come to their
attention.

         On June 5, 2001, twenty-four companies, including the Company, who had
issued securities to the public in their initial public offerings, together
with the investment banks who acted as underwriters in these initial public
offerings, were named as defendants in the lawsuit of Shives et al v. Bank of
America Securities, LLC et al., a class action lawsuit filed in the United
States District Court for the Southern District of New York. Also named as
defendants in this lawsuit were four of the Company's officers and directors.
The plaintiffs in Shives allege that the underwriter defendants combined and
conspired to inflate the underwriting compensation they received in connection
with the initial public offerings of the defendant companies, to manipulate and
inflate the prices paid by plaintiffs for securities issued in the initial
public offerings and to restrain and suppress competitive pricing for
underwriting compensation. Plaintiffs allege claims pursuant to Section 1 of
the U.S. Sherman Antitrust Act of 1890, as amended, Section 4 of the Clayton
Antitrust Act of 1914, as amended, and Section 10(b) of the Securities Exchange
Act of 1934 (and Rule 10(b)-5 promulgated thereunder) against the underwriter
defendants. The plaintiffs further allege that the issuer defendants, including
the Company and certain of its officers and directors, made material
misstatements and omissions in violation of the Securities Act and the Exchange
Act and Rule 10(b)-5 by concealing or failing to disclose the compensation
earned by the underwriter defendants in the initial public offerings. As
against the Company and its oficers and directors, the Complaint defines a
"Rediff.com Sub-class" consisting of all persons who purchased common stock of
Rediff.com India Limited from the time of the IPO through April 4, 2001 and
seeks unspecified damages. This case has been consolidated with several hundred
other similar cases filed against other issuers who had IPOs in 2000 and 2001.

         On November 24, 2003, plaintiffs' counsel in the Shives and Khanna
cases filed a single Consolidated Amended Securities Class Action Complaint
("Consolidated Complaint") which incorporates the material allegations from
the Shives and Khanna cases. On January 30, 2004, the Company and its officers
and directors filed a motion to dismiss the Consolidated Complaint. The
Underwriter Defendants filed a separate motion to dismiss. On October 15, 2004
the District Court judge granted in part and denied in part the motions to
dismiss and set a pre-trial discovery schedule. At a status conference held on
January 26, 2005, the District Court judge set a deadline for pre-trial fact
discovery and referred the parties to a magistrate judge for settlement
discussions.

         The Company believes that the allegations in the Khanna Action and its
related cases, and in the Shives Action are without merit and intends to defend
the lawsuits vigorously. The Company is not able at this point to predict the
course or the outcome of the litigation. In the event the class action law
suits result in substantial judgments against the Company and the Company's
Directors and Officers Liability insurance coverage proves inadequate, the said
judgments could have a severe material effect on the Company's financial
position and its results of operations.

(b) In connection with the Company's acquisition of India Abroad in April 2001,
the Company has been advised by a holdout shareholder that he believes his
shares in India Abroad are worth approximately US$1.2 million. The Company
disputes this assertion and has offered the claimant approximately US$50,000
for his shares. The Company does not know if this offer will be acceptable to
the shareholder or if the shareholder will file a legal action against the


                                     F-26
<PAGE>


Company if the matter is not resolved. The Company believes that the outcome
will have no impact on the Company's financial position, results of operations
or cash flows.

(c) On June 21, 2000, we and our directors and others (Ajit Balakrishnan, Arun
Nanda, Abhay Havaldar, Sunil Phatarphekar, Charles Robert Kaye and Tony Janz)
were named as accused in a criminal complaint (RCC Complaint Number 76 of
2000, the "RCC Complaint"), filed by Mr. Abinav Bhatt, a 22 year old student,
before the Judicial Magistrate, First Class, Pune, India, alleging commission
of an offense under Section 292 of the Indian Penal Code, 1860, as amended, or
IPC, for distributing, publicly exhibiting and putting into circulation
obscene, pornographic and objectionable material. The Complaint alleged that
we, through our website "www.rediff.com", provided a search facility that
enabled Internet users to view pornographic, objectionable and obscene
material. On November 27, 2000, the Judicial Magistrate passed an order in the
RCC Complaint holding that a prima facie case under Section 292 of the IPC had
been made out against us and directed commencement of criminal proceedings
against all the defendants. A criminal writ petition, or Writ Petition, was
filed in the High Court of Mumbai (Criminal Writ Petition Number 1754 of 2000)
seeking, among other things, relief setting aside of the order of the Judicial
Magistrate. The High Court of Mumbai in its order dated December 20, 2000,
while granting ad-interim relief to the petitioners in the Writ Petition,
stayed the order of the Judicial Magistrate pending final disposal of the Writ
Petition. The Writ Petition has been admitted by the High Court of Mumbai. In
the event that the Company is unsuccessful in its defense, the Company and its
directors may face both criminal penalties and monetary fines.

(d) Indian Music Industry ("IMI"), an association claiming to represent 50
Indian companies, which purportedly owns copyrights to sound recordings, filed
a complaint with the Mumbai Police Department in February, 2000, alleging that
the Company was aiding and abetting violations of the Indian Copyright Act of
1957, as amended, because the Company, through its website, provided links to
websites containing downloadable music files copyrighted by IMI members. In
July 2001, the Mumbai Metropolitan Magistrate issued bailable warrants
concerning the complaint against three of the Company's directors. The
warrants as against two of the Company's directors were promptly cancelled and
the warrant against one director was stayed. The Company is continuing to
investigate the underlying facts of the complaint. The directors have
presently been exempted from personal appearance and have filed an application
for discharge of the complaint before the Magistrate. However, a recent
judgment of the Supreme Court of India has held that applications for
discharge cannot be heard by the Magistrate who will be conducting the trial
in relation to a pending complaint. As such, the application for discharge of
the complaint before the Magistrate now needs to be withdrawn and a fresh
application for quashing the complaint will have to be filed in the High
Court. Such application is under preparation and will be filed shortly. If
they are unsuccessful after exhausting all legal remedies, the Company's
directors could face both criminal penalties and monetary fines.

(e) A complaint was filed by Cartier International B.V. ("Cartier
International") against Lotus Safetywear Ltd. ("Lotus Safetywear") and the
Company alleging that Lotus Safetywear has used the trademark "Cartier" on
products that are being sold on Rediff Shopping website. Cartier International
is seeking a permanent injunction restraining the defendants, including the
Company, from using without license or permission the "Cartier" trademark
and/or such other identical or deceptively similar marks. Cartier
International is also claiming damages in the amount of US$45,000. The Company
has filed its response to Cartier International's allegations and has raised
the following defenses: (a) it is Lotus Safetywear, and not Rediff.com, that
has used the "Cartier" trademark and that the Company has not infringed on any
of Cartier International's intellectual property rights; (b) the Rediff
Shopping website only provides an online platform that enables customers and
sellers to enter into sale/purchase transactions and not involved in the sale
or purchase of the goods/products listed on the Company's website; and (c)
vendors such as Lotus Safetywear are required to comply with the terms and
conditions the Company imposes on vendors using Rediff Shopping, which
includes providing the Company with the description of their products, prices
and product images, and which also specifically provides that vendors shall
not infringe on third party rights, including third-party intellectual
property rights. While the Company believes that it has valid defenses to the
action, in the event that the Company is unsuccessful after exhausting all
legal remedies, the Company may face monetary fines.

         Other contingencies

         The Income Tax authorities in India have disallowed certain expenses
claimed by the Company for certain years and have also levied penalties on some
of those disallowances. The amounts of the penalties are not quantifiable at
present and the Company has lodged appropriate appeal proceedings with the
relevant income tax authorities. The Company expects to prevail in the
appellate proceedings.

         The Company is also subject to other legal proceedings and claims,
which have arisen in the ordinary course of its business. Those actions, when
ultimately concluded and determined, will not, in the opinion of management,
have a material effect on the results of operations, cash flows or the
financial position of the Company.


                                     F-27
<PAGE>


19.      New Accounting pronouncements

         In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payments", or SFAS 123R. This statement eliminates the option to
apply the intrinsic value measurement provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" to stock
compensation awards issued to employees. Rather, SFAS 123R requires companies
to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That cost
will be recognized over the period during which an employee is required to
provide services in exchange for the award - the requisite service period
(usually the vesting period). The Company is required to apply SFAS 123R,
effective from the first fiscal year beginning after June 15, 2005 using the
modified prospective method.

         In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3. This
statement changes the requirements for accounting and reporting of a voluntary
change in accounting principle and changes required by an accounting
pronouncement when the specific transition provisions are absent. This
statement requires retrospective application to prior periods' financial
statements of changes in accounting principle. If it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change, this statement requires that the new accounting principle be adopted
prospectively from the earliest practicable date. SFAS No. 154 is effective in
fiscal years beginning after December 15, 2005. The Company does not believe
adoption of SFAS 154 will have a material effect on its financial position,
results of operations or cash flows.

         In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140". This Statement
addresses the recognition and measurement of separately recognized servicing
assets and liabilities and provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. The standard also clarifies when an obligation
to service financial assets should be separately recognized as a servicing
asset or a servicing liability, requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value, if
practicable, and permits an entity with a separately recognized servicing
assets or servicing liability to choose between an amortization method and a
fair value method for subsequent measurement. SFAS 156 is effective for all
separately recognized servicing assets and liabilities acquired or issued after
the beginning of an entity's fiscal year that begins after September 15, 2006.
The Company presently does not have any servicing assets or liabilities.

         In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109". This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on de-recognition, classification,
interest and penalties, disclosure, etc,. This interpretation is applicable
from the fiscal year beginning after December 15, 2006. The impact, if any, on
account of this interpretation is under evaluation.


                                     F-28
<PAGE>


     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
            STATEMENT SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS


To the Shareholders and Board of Directors
Rediff.com India Limited

We have audited the consolidated financial statements of Rediff.com India
Limited as of March 31, 2005 and 2006 and for each of the years in the three
year period ended March 31, 2006 and have issued our report thereon dated
September 28, 2006 (included elsewhere in the Annual report on Form 20-F),
which report expresses an unqualified opinion. Our audits also included the
accompanying Schedule of Valuation and Qualifying Accounts. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.



Deloitte Haskins & Sells
Mumbai, India
September 28, 2006


                                     F-29
<PAGE>


                  Schedule of Valuation and Qualifying Accounts

Allowance for trade accounts receivables

<TABLE>
<CAPTION>

   Description         Balance at       Charged to cost       Write offs       Effect of        Balance
                      Beginning of        and expenses                       exchange rate      at end
                         Period                                                 changes         of period
------------------------------------------------------------------------------------------------------------
<S>                    <C>                    <C>              <C>              <C>            <C>
   Fiscal 2006        US$1,434,910           US$401,818       US$(45,018)      US$(25,286)    US$1,766,424
------------------------------------------------------------------------------------------------------------
   Fiscal 2005        US$1,229,677           US$205,840                -          US$(607)    US$1,434,910
------------------------------------------------------------------------------------------------------------
   Fiscal 2004        US$1,034,360           US$186,090       US$(90,000)       US$99,227     US$1,229,677

</TABLE>


                                     F-30
<PAGE>


                                   SIGNATURE


         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.


                               REDIFF.COM INDIA LIMITED


                               By:    /s/ Ajit Balakrishnan
                                      -----------------------
                               Name:  Ajit Balakrishnan
                               Title: Chairman and Managing Director

Place: Mumbai
Date:  September 29, 2006

<PAGE>

                                   SIGNATURE


         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.


                               REDIFF.COM INDIA LIMITED


                               By: /s/ Joy Basu
                                   ------------
                               Name:  Joy Basu
                               Title: Chief Financial Officer

Place: Mumbai
Date:  September 29, 2006