**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,
                  2007
 
 [   ]
              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 RegisteredNone
              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)
 
 
 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:
        14,603,800 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]
   
 
 **TABLE
        OF CONTENTS**
 
 Page
 
 CROSS
                  REFERENCE SHEET
              1CURRENCY
                  OF PRESENTATION AND CERTAIN DEFINED TERMS
              3FORWARD-LOOKING
                  STATEMENTS
              4EXCHANGE
                  RATES
              5SELECTED
                  CONSOLIDATED FINANCIAL DATA
              6RISK
                  FACTORS
              8BUSINESS
              25MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              42MANAGEMENT
              53RELATED
                  PARTY TRANSACTIONS
              62EXCHANGE
                  CONTROLS
              63TRADING
                  MARKET
              66RESTRICTION
                  ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
              67PRINCIPAL
                  SHAREHOLDERS
              71TAXATION
              73USE
                  OF PROCEEDS
              79CONTROLS
                  AND PROCEDURES
              80PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              81PRESENTATION
                  OF FINANCIAL INFORMATION
              82ADDITIONAL
                  INFORMATION
              83EXHIBIT
                  INDEX
              89INDEX
                  TO FINANCIAL STATEMENTS
              F-1
 
 
 
 
 
  **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, 2005, 2006 and 2007 and the
        related
        three-year period ended March 31, 2007. 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”.
 
 Item
                  12.
              Description
                  of Securities Other than Equity
                  Securities
   1
  Not
                    applicable.PART
                    IIItem
                    13.
                Defaults,
                    Dividend Arrearages and DelinquenciesNot
                    applicable.Item
                    14.
                Material
                    Modifications to the Rights of Security Holders and Use of
                    ProceedsSee
                    “Use of Proceeds”.Item
                    15.
                Controls
                    and ProceduresSee
                    “Controls and Procedures”.Item
                    16A.
                Independent
                    Audit Committee Financial ExpertSee
                    “Management”.Item
                    16B.
                Code
                    of EthicsSee
                    “Management”.Item
                    16C.
                Principal
                    Accountant Fees and ServicesSee
                    “Principal Accountant Fees and Services”.Item
                    16D.
                Exemptions
                    from the Listing Standards for Audit CommitteesNot
                    applicable.Item
                    16E.
                Purchases
                    of Equity Securities by the Issuer and Affiliated
                    PurchasersNot
                    applicable.PART
                    IIIItem
                    17.
                Financial
                    StatementsNot
                    applicable.Item
                    18.
                Financial
                    StatementsSee
                    the Report of Independent Registered Public Accounting Firm,
                    U.S. GAAP
                    Consolidated financial statements and the notes thereto for Rediff.com
                    India Limited and its consolidated subsidiaries for the fiscal
                    years ended
                    March 31, 2005, 2006 and 2007 and the related three-year period
                    ended
                    March 31, 2007.Item
                    19.
                ExhibitsSee
                    the Exhibit Index and the attached
                    exhibits.
 2
  **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, 2007, for cable
        transfers in Indian Rupees as certified for customs purposes by the Federal
        Reserve Bank of New York, which was Rs.43.10 to US$1.00. The reporting currency
        for the financial statements is the U.S. dollar and the translation from
        Indian
        Rupees to U.S. dollars have been performed using rates specified by the Reserve
        Bank of India.
 
 
 3
 
 **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:
 
 ·
              our
                  goals and strategies;
  ·
              our
                  recently acquired businesses and other acquisitions, investments
                  and
                  divestments;
  ·
              the
                  importance and expected growth of Internet technology, including
                  sales of
                  personal computers and mobile
                  phones;
  ·
              the
                  pace of change in the Internet
                  market;
  ·
              the
                  demand for Internet services; and
  ·
              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
  **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  trade on the NASDAQ Global 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:
 
 **Fiscal
                    Year Ended March 31,**
              
              **Period
                    End(1)**
              
              **Average(1)(2)**
              
              **High**
              
              **Low****(Rs.)**2003
              
              47.53
              
              48.36
              
              49.07
              
              47.532004
              
              43.40
              
              45.78
              
              47.46
              
              43.402005
              
              43.62
              
              44.87
              
              46.45
              
              43.272006
              
              44.48
              
              44.21
              
              46.26
              
              43.052007
              
              43.10
              
              45.06
              
              46.83
              
              42.78
 
 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****(Rs.)**March
                  2007
              44.43
              
              42.78April
                  2007
              43.05
              
              40.56May
                  2007
              41.04
              
              40.14June
                  2007
              40.90
              
              40.27July
                  2007
              40.42
              
              40.12August
                  2007
              41.15
              
              40.25September
                  2007 (until September 21, 2007)
              40.81
              
              39.81
 
 On
        September 21, 2007, the noon buying rate in the City of New York was Rs.39.84
        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
  **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, 2006 and 2007 and the selected statement of operations data for
        the
        fiscal years ended March 31, 2005, 2006 and 2007 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, 2003, 2004 and 2005 and the selected statement of operations data
        for
        the fiscal years ended March 31, 2003 and 2004 are derived from U.S. GAAP
        financial statements which are not included in this annual report.*
 
 **Fiscal
                    Years Ended March 31, -****2003**
              
              **2004**
              
              **2005**
              
              **2006**
              
              **2007****(in
                  US$ thousands, except per share data)****Statement
                  of Operations data:**Revenues
              US$8,572
              
              US$9,446
              
              US$12,627
              
              US$18,701
              
              US$28,676Cost
                  of revenues
              5,560
              
              4,738
              
              5,113
              
              5,039
              
              5,416Operating
                  expenses
              14,903
              
              7,927
              
              9,227
              
              12,683
              
              20,195(Loss)/
                  Income from continuing operations
              (12,177)
              
              (3,349)
              
              (1,220)
              
              1,213
              
              3,065(Loss)/
                  Income from discontinued
                operations
              (6,804)
              
              (2,371)
              
              (208)
              
              --
              
              --Net
                  (loss)/ income
              US$(18,981)
              
              US$(5,720)
              
              US$(1,428)
              
              US$1,213
              
              US$6,963(Loss)/
                  Earnings per Equity Share(from
                  continuing operations) –
                  basic
              US$(0.95)
              
              US$(0.26)
              
              US$(0.10)
              
              US$0.089
              
              US$0.48(from
                  discontinued operations)
                  – basic
              US$(0.53)
              
              US$(0.19)
              
              US$(0.01)
              
              --
              
              --(Loss)/
                  Earnings per Equity Share – basic
              US$(1.48)
              
              US$(0.45)
              
              US$(0.11)
              
              US$0.089
              
              US$0.48(Loss)/
                  Earnings per Equity Share(from
                  continuing operations) –
                  diluted
              US$(0.95)
              
              US$(0.26)
              
              US$(0.10)
              
              US$0.088
              
              US$0.47(from
                  discontinued operations)
                  – diluted
              US$(0.53)
              
              US$(0.19)
              
              US$(0.01)
              
              --
              
              --(Loss)
                  Earnings per Equity Share – diluted
              US$(1.48)
              
              US$(0.45)
              
              US$(0.11)
              
              US$0.088
              
              US$0.47Weighted
                  average number of equity shares-
                  Basic
              12,795
              
              12,800
              
              12,850
              
              13,487
              
              14,543-
                  Diluted
              12,795
              
              12,800
              
              12,850
              
              13,764
              
              14,924
 
 
 **As
                    of March 31,****2003**
              
              **2004**
              
              **2005**
              
              **2006**
              
              **2007****(in
                  US$ thousands)****Balance
                  Sheet Data:**Cash
                  and cash equivalents
              US$14,384
              
              US$11,639
              
              US$10,069
              
              US$53,094
              
              US$53,546Current
                  assets
              18,015
              
              15,293
              
              15,323
              
              60,652
              
              65,851Current
                  liabilities
              4,777
              
              3,825
              
              5,878
              
              7,239
              
              8,933Total
                  assets
              30,332
              
              24,868
              
              25,690
              
              74,110
              
              86,493Total
                  shareholders’ equity
              25,541
              
              21,027
              
              19,797
              
              66,870
              
              77,223
   6
 
 *
              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
  **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.*
 
 RCC
        Complaint
 
 On
        June 21, 2000, we and our directors and others (including Ajit Balakrishnan,
        Arun Nanda, Abhay Havaldar, Sunil Phatarphekar, Charles Robert Kaye and Tony
        Janz) were named as defendants 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. The application is pending hearing. Although our directors believe
        they have valid defenses, 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.
 
 Super
        Cassette Industries Complaint
 
 A
        complaint was filed by Super Cassettes Industries Limited (“SCIL”), a producer
        and publisher of sound recordings and audio visual songs in India, against
        us
        and our Chairman/Chief Executive Officer as well as Ram Gopal Verma Films
        Private Limited, in the High Court of Delhi (Suit No. C.S. (O.S.) 736 of
        2007).
        The complaint alleges violations of the Indian Copyright Law of 1957 through
        our
        placement on our website of video clips of certain songs from two Hindi films
        (Nishabd and Honeymoon Travels Pvt Ltd).  Pursuant to an
   8
  assignment,
        SCIL claims to own sole copyrights in the
        audio visual songs, sound recordings, lyrics and musical composition in the
        two
        films. The complaint seeks injunction relief, damages in the amount of Rs.2.0
        million (approximately US$50,000) and other relief. In June 2007, we filed
        a
        written reply. We have since removed these clips from our website. The matter
        is
        now pending before the High Court of Delhi. All of these actions require
        management time and cost. In the event that we are unsuccessful in our defense,
        we and our Chairman/Chief Executive Officer may face penalties and fines.
        Please
        see the section entitled “Business 3⁄4 Legal
        Proceedings”
in this annual report for more information on the litigation.
  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 incur losses in the future 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, 2007, we had an accumulated deficit of
        approximately US$47.65 million. While we earned a net income of US$6.96 million
        for the fiscal year ending March 31, 2007, 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.In recent
        times, we have witnessed increased competition in India from established
        foreign
        brands such as Google, Yahoo and MSN.  We are also subject to
        competition from companies known as “aggregators”, which aggregate advertising
        space in third party websites and resell such space to our customers or
        potential customers.  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
   9
  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. 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
        Indian advertising revenues include revenues from other Internet companies,
        including those engaged in the business of job searches, travel, matrimonial
        and
        online shopping. Some of these companies are startups without proven long-term
        business models and are dependent on external funding for future growth.
        Any
        downturn in advertising spending from this segment could have an adverse
        impact
        on our revenues and profitability.
 
 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 successfully adapt
        to
        new forms of pricing for the services and products we offer. For example,
        we
        understand certain of our competitors have been willing to charge for job-site
        advertising, not on the basis of clicks on hyperlinks, but only if clicks
        result
        in résumés being sent to the customers. Increased competition or the actions of
        our existing competitors may result in:
 
 ·
              loss
                  of visitors and website traffic;
  ·
              loss
                  of paid subscribers;
  ·
              loss
                  of advertisers;
  ·
              reduced
                  operating margins;
  ·
              loss
                  of market share; and
  ·
              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:
 
 ·
              increased
                  competition;
  ·
              lower
                  than expected revenues from one or more of our
                  customers;
   10
  ·
              changes
                  in prices for our product and service
                  offerings;
  ·
              increase
                  in personnel, marketing and other operating
                  expenses;
  ·
              our
                  ability to attract new users and to retain existing users at reasonable
                  costs;
  ·
              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;
  ·
              the
                  timing of our expansion plans in India and other geographic
                  markets;
  ·
              seasonality
                  in retail sales;
  ·
              technical
                  difficulties, system or website downtime or Internet service disruptions;
                  and
  ·
              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
        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:
 
 ·
              our
                  ability to attract and retain advertisers at profitable rates in
                  light of
                  intense competition;
  ·
              our
                  ability to generate and continue to grow a large community of users
                  with
                  demographics attractive to
                  advertisers;
  ·
              advertisers’
                  acceptance of the Internet as an effective and sustainable
                  medium;
  ·
              the
                  effectiveness of our advertising delivery, tracking and reporting
                  systems;
                  and
  ·
              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.
  11
  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.
 
 *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, 2007, our top ten advertisers in India accounted
        for approximately 42% of our India Online revenues. For the same period,
        for our
        U.S. publishing business, our top ten advertisers contributed approximately
        33%
        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:
 
 ·
              system
                  failures and outages caused by fire, floods, earthquakes, tsunamis,
                  power
                  loss, telecommunications failures and similar
                  events;
  ·
              software
                  errors; computer viruses, break-ins and similar disruptions from
                  unauthorized tampering with our computer
                  systems;
  ·
              security
                  breaches related to the storage and transmission of proprietary
                  information, such as credit card numbers or other personal information;
                  and
  ·
              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.
  12
 
 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 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:
 
 ·
              the
                  failure to identify operating weaknesses of the acquired business
                  during
                  the course of due diligence and negotiations of these
                  transactions;
  ·
              the
                  difficulty of assimilating the operations, third-party relationships
                  and
                  personnel of the acquired companies with our
                  operations;
  ·
              the
                  potential disruption to our ongoing business and distraction of
                  management
                  during the acquisition and integration
                  process;
  ·
              the
                  difficulty of incorporating acquired technology, software or content
                  into
                  our products, and unanticipated expenses related to such
                  integration;
  ·
              the
                  impairment of relationships with employees and customers as a result
                  of
                  any integration of new management
                  personnel;
  ·
              the
                  potential unknown liabilities associated with acquired
                  businesses;
  ·
              failure
                  to develop successfully new products or
                  technologies;
  ·
              failure
                  to popularize such products or technologies and/or derive expected
                  revenues therefrom;
  ·
              unfavorable
                  changes in business environment and government regulations;
                  and
  ·
              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
  13
  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.
 
 *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,
        2007
        was from our fee-based Internet services, including paid e-mail services,
        other
        subscription services and wireless short messaging service in India. If not
        enough users adopt and use our fee-based Internet services, our growth may
        be
        adversely affected.
 
 *We
        depend on mobile operators to advertise our mobile products to their
        customers.*
 
 We
        have arrangements with most Indian
        mobile operators which allow the customers of such mobile operators to download
        ringtones, wallpapers and other products from our servers. These customers
        can
        also access information relating to news, business and other information
        from us
        by using short messaging services. Some operators permit us to selectively
        send
        SMS messages advertising our mobile products to a section of their customer
        base. The Telecom Regulatory Authority of India (“TRAI”) recently announced a
        plan to prevent unsolicited commercial communications to mobile phone users
        who
        sign up for a “Do Not Disturb” registry. At present it is not clear what
        implications this will have on us. Any regulatory action to restrict or reduce
        our ability to advertise our mobile products and services to mobile users
        may
        have an adverse impact on our future operating results.
 
 *Change
        in our mobile SMS short code (from 7333 to 57333) could negatively impact
        our
        revenues from mobile SMS services.*
 
 We
        have arrangements with most Indian mobile operators which allow the customers
        of
        such mobile operators to download ringtones, wallpapers and other products
        from
        our servers and also to access information relating to news, business and
        other
        services by keying in our four digit SMS short code (7333) from their mobile
        phones. The Department of Telecommunications of India has instructed all
        mobile
        service providers and content providers to change their SMS short code to
        a five
        digit number with a prefix “5” to the existing code and accordingly, we have
        adopted the revised five digit SMS short code (57333). If we are unable to
        communicate such change to mobile customers, this may have a negative impact
        on
        our earnings and cash flow.
 
 *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.
  14
  We
        may be liable to third parties for information uploaded on or retrieved from
        our
        website.
 
 We
        could be exposed to liability for content that may be accessible through
        our
        website or content and materials that we develop or that our users may upload
        or
        post in our social networking sites, 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. 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. (“Cartier
        International”) in the High Court of Delhi, India, where Cartier International
        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:
 
 ·
              unsolicited
                  e-mail;
  ·
              lost
                  or misdirected e-mail;
  ·
              illegal
                  or fraudulent use of e-mail;
  ·
              interruptions
                  or delays in e-mail service; and
  ·
              loss
                  or deletion of data stored in
                  mailboxes.
  We
        recently launched a social networking platform called iShare which allows
        members to upload and share music, videos and photos. Under our terms of
        use,
        our members are responsible for their accounts and must agree and undertake
        not
        to post or upload any material that violates or infringes any copyright or
        other
        privacy laws and acknowledge that Rediff.com assumes no responsibility for
        the
        contents accessed or uploaded through this service. Nonetheless, we could
        be
        subject to litigation within or outside of India which could include civil
        or
        criminal prosecution and civil liability. Such litigation could be costly
        to
        defend, involve substantial management time and in such event we can give
        no
        assurance that we would succeed in defending any such litigation.
 
 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.*
 
 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.
   15
  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. 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 12.18% of its value relative to the U.S. dollar from a rate
        of
        Rs.49.08 = US$1.00 in May 2002 to a rate of Rs.43.10 = US$1.00 as of March
        31,
        2007. As of July 31, 2007, the cable transfer buying Rupee/U.S. dollar exchange
        rate quoted by the Federal Reserve Bank of New York was Rs.40.18 = US$1.00,
        a
        6.77% appreciation against the rate as of March 31, 2007 stated above. The
        reporting currency for the financial statements is the U.S. dollar and the
        translation from Indian Rupees to U.S. dollars have been performed using
        rates
        specified by the Reserve Bank of India.
  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
   16
  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, 2007, our five largest shareholders beneficially owned an aggregate
        of approximately 59.9% 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:
 
 ·
              amending
                  our Articles of Association;
  ·
              issuing
                  additional shares of capital stock, except for pro rata issuance
                  to
                  existing shareholders;
  ·
              commencing
                  any new line of business; and
  ·
              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.
 
 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.
  17
  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 3⁄4
        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, 2007 were
        estimated at 6.34 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
        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 could be limited by the cost of obtaining hardware, software and
        communications links necessary to connect to the Internet in India.
        If  much of India’s population is not able to afford access to the
        Internet, it may be difficult for us 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, broadband penetration rates in India are very low
        compared to other developed countries. According to a recent report published
        by
        CLSA Asia
  18
  Pacific
        Markets, India had a broadband subscriber base of 2.4 million as of March
        31,
        2007 as compared to 51.9 million for China.  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:
 
 ·
              inconsistent
                  quality of service;
  ·
              lack
                  of legal infrastructure relating to e-commerce in
                  India;
  ·
              lack
                  of security of commercial data such as credit card
                  numbers;
  ·
              low
                  number of Internet users in India;
                  and
  ·
              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.
 
 *Changes
        in employee benefit policies or laws could affect our financial conditions
        and
        our ability to retain talent.*
 
 The
        Indian Finance Act of 2007 imposed a fringe benefit tax (“FBT”) on companies
        with respect to specified securities or equity shares allotted or transferred,
        directly or indirectly, by the company free of cost or at a concessional
        rate to
        its employees.  The FBT is payable by the employer on the difference
        between the fair market value of options on the date of vesting and the exercise
        price thereof. The Government of India has not yet published guidelines on
        how
        the fair market value of the options should be determined. The new legislation
        permits the employer to recover the FBT from the employees. If we are not
        successful in recovering the FBT from our employees, this could cause our
        overall expenses to increase significantly, and impact our cash flows. Further,
        any passing on of the FBT by us to our employees may reduce the effectiveness
        of
        stock option grants in attracting and retaining talented employees.
 
 **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
  19
  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.
 
 *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 and the Reserve Bank of India. Our failure
        to obtain approval 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
  20
  issued
        by the Reserve Bank of India, the acquisition of companies organized outside
        India is permitted under certain circumstances without prior approval if
        such
        acquisition does not exceed 300% of the Indian party’s net worth as of the date
        of the last audited balance sheet of the Indian party. This ceiling includes
        contribution to the capital of companies organized outside India, loans granted
        by the Indian party to such companies organized outside India and 100% of
        guarantees issued by the Indian party to or on behalf of such companies
        organized outside India.
 
 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
        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 Global 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 a renunciation in favor of a resident of India of rights
        to
        subscribe to equity shares pursuant to a rights offering or for the
        sale of equity shares underlying ADSs by a non-resident of India to a resident
        of India, 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:
  21
  
 ·
              if
                  the consideration payable for the transfer does not exceed Rs.2.0
                  million,
                  at a price mutually agreed upon by the seller and the buyer, based
                  on any
                  recognized valuation methodology currently in use, 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
  ·
              if
                  the consideration payable for the transfer exceeds Rs.2.0 million,
                  at a
                  price arrived at, at the seller’s option, in any of the following manners,
                  namely: (i) a price based on earnings per share (EPS linked to
                  the Price
                  Earning (P/E) multiple), or a price based on the Net Asset Value
                  (“NAV”)
                  linked to book value multiple, whichever is higher; or (ii) a price
                  which
                  is the lower of the two independent valuations of the equity shares
                  being
                  transferred, one prepared by the statutory auditors of the company
                  and the
                  other by a Chartered Accountant or a Merchant Banker in Category
                  1
                  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, 2007, we held approximately US$53.55 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. Please 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” in this
        annual report for more information. 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.
 
 *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
  22
  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”.
 
 *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, 2007, we had an aggregate of
        14,603,800 Equity Shares outstanding. Of the outstanding Equity Shares,
        8,907,200 ADSs, representing 4,453,600 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).
  23
  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$1.21 million and US$6.96
        million of net income in fiscal 2006 and 2007, respectively, 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.
 
 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:
 
 ·
              effect
                  service of process upon us outside India or these persons outside
                  the
                  jurisdiction of their residence; or
  ·
              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.
  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:
 
 ·
              was
                  not rendered by a court of competent
                  jurisdiction;
  ·
              was
                  not rendered on the merits of the
                  case;
  ·
              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;
  ·
              was
                  obtained in proceedings which are opposed to “natural justice”;
                  or
  ·
              sustains
                  a claim founded on a breach of any law in force in
                  India.
   24
  **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
        Global
        Market. 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 traded on the
        NASDAQ Global Market (formerly the NASDAQ National 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.
 
 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 US$3.4 million. Next, in March 2001, we acquired Value
        Communication Corporation (“ValuCom”), a provider of online phone cards, for
        US$3.7 million plus deferred consideration payable over a period of two 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, 2005, 2006 and 2007 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.
  25
  **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:
 
 ·
              According
                  to statistics released by the MAIT, the Indian PC market grew by
                  26% in
                  terms of sales volume during the fiscal 2007 compared to fiscal
                  2006;
                  and
  ·
              According
                  to the TRAI, India’s mobile subscriber base grew by 20 million subscribers
                  during the first quarter of fiscal 2008, increasing the mobile
                  subscriber
                  base in India to 185 million as of June 30, 2007, a 65% increase
                  compared
                  to the same date last year.
  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:
 
 ·
              We
                  believe that we were an early mover in the Indian market; our brand
                  is
                  recognized and valued by Indian Internet
                  users;
  ·
              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;
  ·
              We
                  are one of the few Internet companies in India offering complete
                  website
                  services, such as e-mail, search, community, instant messaging,
                  blogs,
                  news and online shopping;
  ·
              According
                  to a recent report published by CLSA Asia Pacific Markets, India
                  had a
                  broadband subscriber base of 2.4 million as of March 31, 2007 as
                  compared
                  to 51.9 million for China. As penetration and usage of the Internet
                  grow
                  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;
  ·
              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
  ·
              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.
   26
  **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:
  ·
              Online
                  advertising services on our Rediff.com website, revenues from which
                  currently account for a significant portion of our India Online
                  business.
                  These include banner advertising, performance based advertising,
                  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, domestic corporations and small and medium
                  enterprises.
  ·
              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.
  ·
              Community
                  and social networking platforms which connect people through an
                  online
                  network. Our community products and platforms include iShare, Get
                  Ahead
                  Q&A and Rediff iLand.
  ·
              News
                  and information services, including breaking news, a recently launched
                  money channel Moneywiz 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,
                  entertainment and sports.
  ·
              Communication
                  services, including e-mail and instant messaging. E-mail services
                  are
                  provided in a variety of Indian
                  languages.
  ·
              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.
  ·
              Consumer
                  and business services, including webhosting, domain name registration,
                  matchmaking and astrology. Some of our consumer services are offered
                  on a
                  subscription basis.
  ·
              Search
                  and classified services, including facilities to locate local information
                  on domestic airfares, job listings, images and
                  businesses.
  ·
              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. We offer a wide range of payment options to our
                  consumers.
  ·
              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 community products and platforms, e-commerce and mobile services.
        With 53.6 million online registered users worldwide as at March 31, 2007,
        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, 2007, the India Online business segment
        generated US$20.8 million of revenues, accounting for 72% of our total
        revenues.
 
 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 and several other topics of
  27
  interest.
        We currently offer this information and content without charge to our users.
        We
        launched a new Rediff.com homepage in fiscal 2007 that incorporates Web 2.0
        features which we believe enhance usability and our users' browsing
        experience.
 
 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:
 
 ·
              *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.
  ·
              *Business
                  and Finance*. Our recently launched Finance platform Moneywiz provides
                  stock market quotes, company information and a personal portfolio
                  tracker.
                  In addition, we provide business news, feature articles, expert
                  columns
                  and interviews. 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.
  ·
              *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.
  ·
              *Sports*.
                  Our 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.  In fiscal
                  2007, we introduced a platform called Predict and Win, a skill-based
                  sports game where players earn points based on their prediction
                  of sports
                  matches.  The platform was launched in connection with the
                  Cricket World Cup and has expanded to other sporting
                  events.
  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. In fiscal 2007, the editorial content
        channel, Get Ahead, was enhanced by integrating a forum for questions and
        answers (“Q&A”).  Users can post questions and answers on various
        issues and vote for the most relevant answers within a community
        environment.  Prolific users are rated using a point
        system.  The Company also launched a service enabling external
        websites to create their own Q&A services using the Company’s
        technology.
 
 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 newsletters.
 
 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.
  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, 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.
  28
  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.
 
 ·
              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 unlimited 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. In fiscal 2007, we introduced a
                  new version
                  of the web-based mail service to provide users with an experience
                  akin to
                  desktop-based e-mail products.  The e-mail service is also
                  available in 11 Indian languages.  We also recently introduced
                  the Access Mails Anywhere functionality, enabling mobile phone
                  users to
                  configure their Rediffmail account with their mobile phone and
                  access
                  their inboxes and respond to emails from their mobile
                  phones.  As of March 31, 2007, we had approximately 48.5 million
                  registered Rediffmail users.
  ·
              Rediffmail
                  Pro is a subscription e-mail 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 different users and
                  increased
                  without limitation at an additional charge. Rediffmail Pro also
                  offers
                  enhanced address book features and enhanced 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 (approximately US$41). Rediffmail
                  Enterprise Pro is a web based e-mail service for corporates having
                  a large
                  field force of agents/sales
                  associates/dealers.
  ·
              Rediff
                  Business Solution 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 service,
                  a
                  choice of Windows or Linux platforms, POP3 business e-mail sevice
                  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.
 
 *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 offer “Moblogs” – a mobile blogging feature which allows users
        to upload pictures or text from mobile phones directly onto their blogs – and we
        believe we were the first in India to offer this service.
   29
  *Social
        Networking*
 
 Our
        recently launched social networking platform iShare allows users to upload
        videos, images and music and share these with other users. iShare is a social
        networking platform where users can meet other people and make new
        friends.
 
 Rediff
        Connexions is our free online social networking product which allows users
        to
        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.
 
 In
        fiscal 2007, we created a forum for questions and answers with Get Ahead,
        our
        popular editorial content channel. This new social media platform allows
        users
        to post questions and answers on various issues, and vote for the most relevant
        answers, within a community environment. Prolific users of this platform
        are
        rated using a point system.
 
 *Search
        Services*
 
 As
        India’s Internet user base grows there is an increasing need for localization of
        services. Our search services are described below.
 
 ·
              *Fare
                  Search*, which allows users to search for and compare domestic
                  airfares across Indian carriers.  Added features to Fare Search
                  include the “Lowest Fare Finder” search tool, which charts out the lowest
                  price points for up to 90 days, and the “Fare under Rs. 100/-”(US$3)
                  search tool, which allows users to search for deep discounted air
                  fares.  In addition, users can search for hotel accommodation
                  across a large number of Indian cities with the “Hotel Search”
                  facility.  Users can also access Fare Search on GPRS enabled
                  mobile phones.
  ·
              *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.
                  We recently introduced the addition of a free email alert feature
                  that
                  allows users to stay updated on the latest job openings in their
                  desired
                  categories.
  ·
              *Product
                  Search*, which allows users to search for and compare product features
                  and prices for several hundred SKUs across major Indian cities.
                  Product
                  Search features a “Price history” feature that enables users to track
                  prices of different products on a month-on-month
                  basis.
  ·
              *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.
  ·
              *Other
                  search services*, which include Image Search, Book Search and Ringtone
                  Search.
  *Mobile
        Services*
 
 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 57333, 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:
 
 ·
              *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.
   30
  ·
              *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). Users are charged for the cost of
                  each
                  outgoing SMS message which responds to a
                  question.
  ·
              *Services*.
                  We offer users a variety of mobile phone related services by SMS,
                  such as
                  the ability to search, seek and interact with other users, play
                  interactive games, and receive jokes and astrological predictions.
                  Users
                  are charged for the cost of each outgoing SMS message which requests
                  the
                  service.
  ·
              *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 for the cost of each outgoing SMS message which requests
                  the
                  news and information.
  ·
              *Subscription*.
                  Subscription based services have been introduced where customers
                  can
                  choose to subscribe for a monthly service for receiving daily SMS
                  based
                  information, jokes, or astrology related services for a fixed monthly
                  fee.
  ·
              *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.  In fiscal 2007, we introduced a Hindi language
                  feature for Rediff BOL and a downloadable program for subscribers
                  with
                  Symbian OS mobile phones.
  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 mobile- based offerings.
        With these partnerships with Indian mobile phone operators, 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 from merchants
        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 and check-collection
        facilities in more than 25 of the 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
        merchants. 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
        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.
   31
  *Online
        Advertising*
 
 Online
        advertising on our site includes revenues from banner advertising, performance
        based advertising, email and text link campaigns and sponsorships of events.
        Our
        advertisers enter into agreements pursuant to which they either pay a fixed
        fee
        per thousand banner impressions 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 banner size, 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 links, image ads, video ads and
        combinations of these.
 
 We
        had over 350 advertisers on our Rediff.com India website during the fiscal
        year
        ended March 31, 2007. Our top ten advertisers accounted for approximately
        54% of
        our India advertising revenues for the fiscal year ended March 31, 2007.
        A
        partial list of our advertising clients includes Bennett Coleman Group,
        Monster.com, Naukri.com, Bharatmatrimony.com, ICICI Group, Ebay.com,
        Makemytrip.com and Microsoft.
 
 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 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.
 
 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
  32
  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.
 
 We
        use Apache and IIS servers located in India and which run on Linux, and Windows
        platforms. Servers in India are maintained mainly at Videsh Sanchar Nigam
        Limited (“VSNL”) and the Reliance Data Centre in Mumbai. 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, 2007, our sales team consisted of 111
        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
        work with 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 major advertisers in India as well as smaller corporations. 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”,
“shopping bag details” and “order status update by automated e-mail” features
        make online shopping more convenient for users. Users can pay for purchases
        by
        credit card, local check, cash-on-delivery (“C.O.D.”), Rediff gift vouchers 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. We also have
        a
        dedicated customer phone support team to facilitate completing
        transactions.
 
 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
        or
        the user’s designated courier. 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 ten 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.
 
 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.
  33
  Electronic
        Payments
 
 We
        were among the first Internet companies in India to accept credit cards for
        online payments. Users can use all leading international and Indian credit
        cards
        and online money transfers for online payments. All online transactions are
        secured by Verisign 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 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, 2007, the United States publishing business generated
        US$7.9 million of revenues, accounting for 28% 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. Subscriptions
        for
        six months, two years, five years and ten years 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.
        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 place 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 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
  34
  subscription
        revenues. Competition for visitors, advertising revenue 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:
 
 ·
              our
                  ability to adapt to new technologies and to develop new products
                  and
                  services;
  ·
              the
                  user friendliness and popularity of our
                  services;
  ·
              our
                  sales and marketing efforts;
  ·
              the
                  performance of our technology; and
  ·
              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 (“ISPs”). Our current and anticipated competitors
        include:
 
 ·
              Google;
  ·
              Yahoo.co.in
                  and Yahoo.com (Yahoo, Inc.);
  ·
              MSNBC.co.in
                  and MSN.com (Microsoft
                  Corporation);
  ·
              AOL.co.in;
  ·
              IndiaTimes.com
                  (Times Internet Ltd.); and
  ·
              Sify
                  (Sify Ltd.).
  We
        also compete for advertisers and advertising revenue with other forms of
        media,
        such as print media, radio and television, as well as companies known as
        “aggregators”, which aggregate advertising space in third party websites and
        resell such space to our customers or potential customers.
 
 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:
 
 ·
              India
                  West;
  ·
              Indian
                  Express; and
  ·
              News
                  India Times.
    35
 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 registered our trademarks for “Rediff”, “Rediff on the Net and Design
        (Square)”, “Rediff.com” under various classes with the United States Patents and
        Trademarks Office.  We have received registration for our trademarks
“Rediff.com”, “Rediffmail” and “Rediff Bol” in India.
 
 **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 our 3,000 square foot facility expired on October 31, 2006
        and is
        under negotiation for an extension. The lease for our new adjoining offices
        expires on September 30, 2008. We also lease an area of approximately 600
        square
        feet as a warehouse for our Mumbai office.
  We
        lease office space for our branch offices in India. This includes an area
        of
        approximately 3,165 square feet of office space in New Delhi, the lease for
        which expires on November 30, 2009; an area of approximately 265 square feet
        in
        Bangalore, the lease for which expires on September 13, 2008; an area of
        approximately 240 square feet in Hyderabad, the lease for which expires on
        November 14, 2009; and an area of 1,200 square feet at Chennai, the lease
        for
        which expires on January 31, 2008.
  36
  United
        States
  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 the
        Khanna
        Action, a class action lawsuit filed in the U.S. District Court for the Southern
        District of New York. The plaintiffs alleged 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 were all persons who purchased ADSs from
        the
        time of the IPO through April 14, 2001.
  Several
        other class action lawsuits were subsequently filed against us and other
        defendants stating substantially the same allegations as set forth in the
        Khanna
        Action.
  All
        the cases were 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 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 alleged 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 alleged
        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 alleged 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 defined
        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.  This case was 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 incorporated 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 and referred the parties to a magistrate judge for settlement
        discussions.  The parties subsequently engaged in discovery and
        continued settlement discussions in parallel.  The settlement
        discussions resulted in an agreement by the plaintiffs to settle all claims
        against us and our officers and directors in exchange for a payment of US$2.5
        million.  Our D&O insurance policy provider agreed to fund the
        entire amount of the settlement.  The settlement agreement was
        submitted to review by the Court and by all members of the putative
        class.  No class member submitted any objection to the settlement or
        exercised a right to opt-out of the settlement.  On July 12, 2007, the
        Court entered an order giving the settlement full and final approval and
        dismissing all claims against us and our officers and directors.  As
        there have been no appeals filed within 30 days of entry of the Court’s order,
        this litigation was finally concluded on August 12, 2007.
  37
  We
        may be subject to additional lawsuits of this nature filed in the future.
        We
        cannot predict the outcome of these lawsuits, nor can we predict the amount
        of
        time and expense that will be required to resolve these lawsuits. If these
        lawsuits become time consuming and expensive, or if there are unfavorable
        outcomes in any of these cases, there could be a material adverse effect
        on our
        business, financial condition and results of operations. We currently hold
        insurance policies for the benefit of our directors and officers (the “D&O
        Policy”), which provide coverage against certain claims. However, the amount of
        coverage may not be sufficient for our needs or the various exclusions in
        the
        D&O Policy could result in denial of coverage, in which case we would have
        to self-fund all or a substantial portion of our indemnification
        obligations.
 
 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 IPC for distributing,
        publicly exhibiting and putting into circulation obscene, pornographic and
        objectionable material. The RCC 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).
 
 Actions
        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. The
        application is pending hearing. 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.
 
 A
        complaint was filed by SCIL, a producer and publisher of sound recordings
        and
        audio visual songs in India, against us and our Chairman/Chief Executive
        Officer
        as well as Ram Gopal Verma Films Private Limited in the High Court of Delhi
        (Suit No. C.S. (O.S.) 736 of 2007). The complaint alleges violations of the
        Indian Copyright Law of 1957 through our placement on our website of video
        clips
        of certain songs from two Hindi films (Nishabd and Honeymoon Travels Pvt
        Ltd),
        of which SCIL claims to own sole copyrights through an assignment in the
        audio
        visual songs, sound recordings, lyrics and musical composition. The complaint
        seeks injunctive relief, damages in the amount of Rs.2.0 million (approximately
        US$50,000) and other relief. In June 2007, we filed a written reply and
        submitted the following facts that: (i) these song clips were uploaded as
        an
        editorial feature due to the recent release of the two films believing these
        to
        be newsworthy, in the course of our regular activity and not for commercial
        purposes; (ii) the clips in question were not downloadable by our users;
        (iii)
        these clips were accompanied
        by editorial review as normally done for a film’s release; (iv) these were
        uploaded on our sites with
  38
  the
        permission of the producer of these films or their publicists who had provided
        us with such clips for the intended use; and (v) the use of the these clips
        on
        our website was fair use, uploaded for its newsworthiness for promotional
        review
        and was non-commercial in nature. We have subsequently removed these clips
        from
        our website. The matter is now pending before the High Court of Delhi. These
        actions require management time and cost. In the event that we are unsuccessful
        in our defense, we and our Chairman may face penalties and fines.
  Actions
        relating to Trademark Infringement
 
 A
        complaint was filed by 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
        (approximately US$50,000). 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.
 
 Other
        proceedings
 
 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. (“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. 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. (“WQN”).
 
 **Government
        Regulation**
 
 **General**
 
 Our
        online business is primarily subject to regulation by the Ministry of
        Communications and Information Technology (“MCIT”), which was formed in October
        1999 and is a part of the Government of India. We may also be subject to
        regulation by the MCIT 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:
 
 ·
              give
                  legal validity to online contracts;
  ·
              give
                  legal validity to digital
                  signatures;
  ·
              make
                  electronic records admissible in court in evidentiary
                  proceedings;
  ·
              set
                  default rules for time and place of dispatch and receipt of electronic
                  records;
   39
  ·
              allow
                  for filing of documents with the Government of India in electronic
                  form;
  ·
              allow
                  for retention of documents, information or records in electronic
                  form;
  ·
              set
                  up certifying authorities to issue and supervise digital
                  signatures;
  ·
              set
                  up a controller of certifying authorities to monitor and supervise
                  the
                  certifying authorities;
  ·
              set
                  up Cyber Regulations Appellate Tribunals to act as quasi-judicial
                  bodies
                  with respect to disputes relating to online transactions;
                  and
  ·
              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 (“the New Telecom Policy”), deals with restructuring of
        the Indian telecommunications sector. The New Telecom Policy states that
        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 be required to obtain prior permission
        from the Department of Telecommunications of the Government of
        India.
  40
  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 six
        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 or that we meet certain conditions in order to make such
        investments.
 
   41
  **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. With 53.6 million online
        registered users worldwide as at March 31, 2007, 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 WQN. 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:
 
 ·
              India
                  Online business, which primarily includes revenues from online
                  advertising
                  and fee-based services. Online advertising includes revenues from
                  advertisements and sponsorships. Fee-based services include revenues
                  from
                  online shopping, subscription services and wireless short messaging
                  services.
  ·
              U.S.
                  Publishing business, which primarily includes revenues from the
                  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:
 
 **For
                    the Fiscal Years Ended March 31,**2005
              
              2006
              
              2007India
                  Online
                  business
              US$6,556,320
              
              US$12,174,927
              
              US$20,759,227U.S.
                  Publishing
                  business
              6,070,344
              
              6,525,753
              
              7,916,298Total
                  revenues
              US$12,626,664
              
              US$18,700,680
              
              US$28,675,525
 
 
 We
        have incurred significant net losses and negative cash flows since our inception
        in January 1996. Although we earned net income of US$6.96 million for the
        fiscal
        year ending March 31, 2007, as of March 31, 2007, we had an accumulated deficit
        of approximately US$47.65 million. We will need to generate additional revenues,
        while controlling our expenses, to continue to increase our profits and to
        reduce our accumulated deficit.
 
 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.
  42
  **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 our 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.
 
 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.
 
 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 products are recognized ratably over the period of
        subscription.
 
 We
        also derive revenues from providing value added mobile services such as
        ringtones, picture messages, logos, wallpapers, e-mail and other related
        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
3⁄4 based
        revenues are
        recognized when the service is performed.
  43
  *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 Rediff 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/amortize our assets on a straight-line basis over the useful life
        of
        the assets, which range from three to ten years.
 
 ***Goodwill***
 
 We
        allocate excess purchase price over the historical cost of businesses acquired
        to goodwill based on their fair values.
 
 We
        test the carrying balances of goodwill 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 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.
 
 ***Acquisitions
        and Divestments***
 
 *Value
        Communications Corporation*
 
 On
        March 23, 2001, we acquired the entire outstanding common stock of 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 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
  44
  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 WQN.  In accordance with SFAS
        No.  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., 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
        Publications, Inc. 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.com, Inc., India
        Abroad Publications, Inc. 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
        test for impairment of goodwill annually, or earlier upon the occurrence
        of a
        triggering event.
 
 **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, 2007, we continued our growth momentum with increases in
        our
        registered user base, paid subscribers and revenues.  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, comprising 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, 2007. Our U.S. Publishing business segment is mainly dependent on our
        ability to attract print and online advertisers 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, 2008 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.
 45
  **Operating
        Results**
 
 The
        comparative analysis presented below relates to our continuing
        operations.
 
 Fiscal
        Year Ended March 31, 2007 compared to Fiscal Year Ended March 31,
        2006
 
 *Revenues*.  Total
        revenues for the fiscal year ended March 31, 2007 increased by 53% to US$28.7
        million from US$18.7 million for the fiscal year ended March 31, 2006. This
        increase was principally attributable to an increase in revenues from our
        India
        Online business and, to a lesser degree, the increase in revenues from our
        U.S.
        Publishing business.
 
 *India
        Online business*.  We recognized US$20.8 million in revenues from
        our India Online business for the fiscal year ended March 31, 2007 as compared
        to US$12.2 million for the fiscal year ended March 31, 2006, representing
        an
        increase of US$8.6 million, or 70%, over the previous fiscal year. The increase
        in revenue was mainly due to increases in:
 
 ·
              advertising
                  revenues by US$7.7 million, primarily as a result of an increase
                  in
                  Internet advertising on our website due to an increase in the number
                  of
                  advertisers as well as an increase in advertising rates compared
                  to the
                  previous year; and
  ·
              fee-based
                  services by US$0.9 million due to an increase in revenues from
                  our
                  subscription services, mobile services and our online shopping
                  marketplace. This resulted from greater usage of these
                  services.
  *U.S.
        Publishing business*.  We recognized US$7.9 million in revenues
        for the U.S. Publishing business for the fiscal year ended March 31, 2007,
        as
        compared to US$6.5 million for the fiscal year ended March 31, 2006,
        representing an increase of US$1.4 million, or 21%, 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 and India in New York newspapers, e-commerce marketplace related
        costs and related salaries. For the fiscal year ended March 31, 2007, cost
        of
        revenues was US$5.4 million, or 19% of total revenues, compared to US$5.0
        million, or 27% of total revenues during the previous fiscal year.
 
 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, 2008 as compared to the fiscal year ended March
        31,
        2007, 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, 2007, sales and marketing expenses were US$5.9 million, compared to US$3.5
        million for the fiscal year ended March 31, 2006, representing an increase
        of
        US$2.4million, or 67%, 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 the number of sales and
        marketing staff we employed. The increase in advertising revenues in fiscal
        2007
        also led to a corresponding increase in incentive payments to sales employees
        during fiscal 2007 due to both the increase in the number of sales employees
        and
        higher per employee incentive payments.
 
 We
        expect our sales and marketing expenses in absolute dollar terms will increase
        for the fiscal year ended March 31, 2008, as compared to the fiscal year
        ended
        March 31, 2007, 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, 2007, product development expenses were US$3.8 million compared to US$2.6
        million for the fiscal year ended March 31, 2006, representing an increase
        of
        US$1.3 million, or 49%. The increase
        was primarily due to an increase in bandwidth charges by US$0.6 million,
        and an
        increase in product development charges by US$0.5 million.
  46
 
 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 premium,
        depreciation and amortization, compensation cost for all employees under
        the
        Employee Stock Option Plan (“ESOP”) and sundry administrative costs. For the
        fiscal year ended March 31, 2007, general and administrative expenses were
        US$10.5 million compared to US$6.6 million for the fiscal year ended March
        31,
        2006, representing an increase of US$3.9 million, or 58%. This increase was
        primarily due to an increase of US$1.6 million in depreciation and amortization
        expense, primarily as a result of an increase in capital expenditure during
        fiscal 2007, an increase in ESOP compensation cost of US$1.3 million in fiscal
        2007 as a result of expensing the fair value of options under Statement of
        Financial Accounting Standard No. SFAS No. 123(R) *Share-based payments*(“SFAS 123R”) and not recording such compensation costs using the intrinsic
        value method under Accounting Principles Board Opinion No. 25, and an increase
        of US$0.6 million on account of provision for doubtful debts.  We
        expect that as we continue to grow, our general and administrative expenses
        will
        continue to increase.
 
 *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,
        2007, other income (net) was US$4.0 million compared to US$0.3 million for
        the
        fiscal year ended March 31, 2006, representing an increase of US$3.7 million.
        Interest income for the fiscal year ended March 31, 2007 was US$3.7 million,
        compared to US$1.2 million for the fiscal year ended March 31, 2006,
        representing an increase of US$2.5 million, or 205%. The increase in interest
        income was primarily due to an increase in interest income from our cash
        deposits with banks. This increase in interest income was primarily due to
        higher applicable interest rates from our Rupee denominated deposits during
        the
        fiscal year ended March 31, 2007 as compared to the fiscal year ended March
        31,
        2006. In fiscal 2007, we recorded a foreign exchange gain of US$0.1 million,
        compared to a foreign exchange loss of US$1.0 million in fiscal 2006, 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).  Other
        income also includes US$0.1 million arising from sale of a minority investment
        in equity shares in an external company. The cost of this investment was
        impaired in the Company’s books and records in a prior year.
 
 *Net
        income*.  As a result of the foregoing, our net income for the
        fiscal year ended March 31, 2007 was US$6.9 million, compared to a net income
        of
        US$1.2 million for the fiscal year ended March 31, 2006.
 
 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 in revenues from
        our
        India Online business and, to a lesser degree, the increase in revenues from
        our
        U.S. 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:
 
 ·
              advertising
                  revenues by US$4.37 million, primarily as a result of an increase
                  in
                  Internet advertising in India; and
  ·
              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,
  47
  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.
 
 *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.
 
 *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
        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.
  48
  **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.
 
 **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 year ended March 31, 2005, we incurred a net loss of US$1.4 million
        and for the fiscal years ended March 31, 2006 and 2007, we earned net income
        of
        US$1.2 million and US$6.9 million, respectively. Although we earned profits
        in
        fiscal years 2006 and 2007, primarily due to increased revenues, 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, 2007, our accounts receivable balance was US$10.7 million compared
        to US$5.4 million as of March 31, 2006, net of allowances of US$2.7 million
        and
        US$1.8 million as of March 31, 2007 and 2006, respectively. This increase
        was
        principally due to the increase in our revenues. During the fiscal years
        ended
        March 31, 2005, 2006 and 2007, we had write-offs or provided allowances of
        US$0.2 million, US$0.4 million, and US$0.9 million, for delinquent trade
        receivables, respectively. These write-offs and allowances constituted 1.7%,
        2.1%, and 3.3% of total revenues, respectively in those years.
 
 *Cash
        Flows*
 
 **For
                    the Fiscal Year Ended March 31,****2005**
              
              **2006**
              
              **2007**Net
                  cash (used in) generated from operating activities:-
                  from continuing operations
              US$144,073
              
              US$1,663,403
              
              US$6,544,790-
                  from discontinued operations
              (509,568)
              
              13,737
              
              --Total
              (365,495)
              
              1,677,140
              
              6,544,790Net
                  cash used in investing activities
              (1,424,091)
              
              (4,584,734)
              
              (8,248,943)Net
                  cash generated from financing activities
              302,925
              
              45,145,582
              
              482,915Effect
                  of exchange rate changes on cash
              (83,156)
              
              786,291
              
              1,673,903Net
                  (decrease)/increase in cash andcash
                  equivalents
              US$(1,569,817)
              
              US$43,024,279
              
              US$452,665
 
 Fiscal
        Year Ended March 31, 2007
 
 Net
        cash generated from continuing operations of US$6.5 million during the fiscal
        year ended March 31, 2007 was principally attributable to net income of US$6.9
        million, primarily due to an increase in advertising and fee based revenues.
        Non-cash items of depreciation, amortization, allowances for doubtful debts
        and
        stock-based compensation cost totaled US$7.0 million due to increased capital
        expenditures and adoption of SFAS.123R.  This was offset by an
        increase in working capital of US$4.9 million, which increase was primarily
        due
        to an increase in gross accounts receivable of US$6.2 million and an increase
        in
        recoverable income taxes of US$1.3 million which was partially offset by
        an
        increase in accounts payable and accrued liabilities of US$1.9
        million.
 
 Net
        cash used in investing activities during the fiscal year ended March 31,
        2007
        was US$8.2 million, consisting principally of purchases of servers and other
        capital equipment aggregating to US$7.8 million in connection with the expansion
        of our network and data storage facility.
 
 Net
        cash provided by financing activities during the fiscal year ended March
        31,
        2007 was US$0.5 million, which represented the net cash proceeds from our
        employee stock options exercised during the year.
 
 As
        of March 31, 2007, we had aggregate commitments for capital expenditures
        of
        approximately US$53,257.
  49
  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.
 
 *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**2008
              
              US$477,529
              
              US$53,2572009
              
              295,998
              
              --2010
              
              5,503
              
              ---2011
                  and
                  thereafter
              
              --
              
              --Total
                  payments
              
              US$779,040
              
              US$53,257
   50
 *Capital
        Expenditures*
 
 Our
        principal capital expenditures are for purchases of computer equipment, such
        as
        servers for our websites and leasehold improvements. In fiscal 2007, 2006
        and
        2005, we had capital expenditures of US$7.8 million, US$4.6 million and US$1.8
        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, 2007, we had net operating loss carry forwards for our Indian
        operations aggregating approximately US$14.4 million, which will expire between
        April 1, 2007 and March 31, 2014.  We also have unabsorbed
        depreciation carry forwards as of March 31, 2007 aggregating approximately
        US$7.1 million.
 
 As
        of March 31, 2007, Rediff Holdings, Inc., our U.S. subsidiary and the holding
        company of our Rediff.com, Inc. and India Abroad Publications, Inc. investments,
        had net operating loss carryforward of approximately US$5.8 million for federal
        income tax purposes. These net operating loss carryforwards expire in years
        2020
        through 2025.
 
 As
        of March 31, 2007, ValuCom had a net operating loss carryforward of
        approximately US$2.9 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.
 
 Whether
        we will be able to realize the future tax benefits related to the deferred
        income tax asset is dependent on many factors, including our 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 assets was required for the period presented.
 
 For
        the years ended March 31, 2006 and 2007, the provision for current income
        taxes
        was approximately US$18,000 and US$83,000, respectively.
 
 **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.
 
 While
        we hold a major portion of our cash and cash equivalents in Indian Rupee
        denominated bank accounts, 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, 2007:
  51
   **As
                  of March 31, 2007****(in
                  thousands)**Accounts
                  payable in U.S. dollars
              
              
              232Accounts
                  receivable in U.S. dollars, net of allowance
              
              
              140Cash
                  balances held in U.S.
                  dollars
              
              
              6,217Net
                  foreign currency exchange
                  exposure
              
              
              6,125
 
 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 U.S. dollars by one Rupee, the net foreign currency
        exchange loss as of March 31, 2007 would be approximately
        US$141,000.
 
 *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, 2007. 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 prevailing interest rates
        applicable to cash deposits during such period would have affected our interest
        income by approximately US$370,000.
 
 **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.
 
 **New
        accounting pronouncements**
 
 In
        July 2006, the Financial Accounting Standards Board (the “FASB”) issued
        interpretation No. 48, “*Accounting for Uncertainty in Income Taxes – an
        interpretation of FASB Statement No. 109*” (“FIN 48”).  FIN 48
        applies to all tax positions within the scope of FASB Statement No. 109 and
        clarifies when and how to recognize tax benefits in the financial statements
        with a two-step approach of recognition and measurement. FIN 48 is effective
        for
        fiscal years beginning after December 15, 2006. FIN 48 also requires the
        enterprise to make explicit disclosures about uncertainties in their income
        tax
        positions, including a detailed roll forward of tax benefits taken that do
        not
        qualify for financial statement recognition. Differences between the amounts
        recognized in the statements of financial position prior to the adoption
        of FIN
        48 and the amounts reported after adoption should be accounted for as a
        cumulative-effect adjustment recorded to the beginning balance of retained
        earnings. We have evaluated the impact of this pronouncement and do not believe
        that adoption of FIN 48 on April 1, 2007 will have a material effect on our
        financial position, cash flows or results of operations.
 
 In
        September 2006, the FASB issued SFAS No. 157 “Fair Value
        Measurements”. This Statement defines fair value, establishes a framework for
        measuring fair value in generally accepted accounting principles (GAAP),
        and
        expands disclosures about fair value measurements. This Statement is effective
        for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years. We
        are  currently evaluating the impact, if any, the adoption of
        SFAS No. 157 will have on its financial reporting and
        disclosures.
 
 In
          February 2007, the FASB issued SFAS No. 159, *“**The Fair
          Value Option for Financial**Assets and Financial Liabilities”*
          (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure
          many financial instruments and certain other items at fair value. The objective
          is to improve financial reporting by providing entities with the opportunity
          to
          mitigate volatility in reported earnings caused by measuring related assets
          and
          liabilities differently without having to apply complex hedge accounting
          provisions. This Statement is expected to expand the use of fair value
          measurement, which is consistent with the Board’s long-term measurement
          objectives for accounting for financial instruments. The fair value option
          established by this Statement permits all entities to choose to measure
          eligible
          items at fair value at specified election dates. This standard is effective
          for
          fiscal years ending on or after November 15, 2007. We are currently
          evaluating the impact, if any, the adoption of SFAS No. 159 will have on
          its financial reporting and disclosures.
  52
 
 **MANAGEMENT**
 
 The
        following table sets forth, as of
        August 16, 2007, the name, age and position of each of our directors and
        executive officers.
 
 **Name**
              **Age**
              **Position**Ajit
                  Balakrishnan(1)(2)
              59
              Chairman
                  and Managing DirectorJoy
                  Basu
              46
              Chief
                  Financial OfficerDiwan
                  Arun Nanda(1)(2)
              63
              DirectorSunil
                  N. Phatarphekar(1)(2)(3)
              43
              DirectorPulak
                  Prasad(1)
              39
              DirectorAshok
                  Narasimhan(1)
              59
              DirectorSridar
                  Iyengar(1)(3)
              60
              DirectorRashesh
                  C. Shah(1)
                  (3)
              44
              Director
 
 (1)
              Member
                  of the Board of Directors
 (2)
              Member
                  of the Compensation Committee
 (3)
              Member
                  of the Audit Committee
 
 **Ajit
        Balakrishnan** is the founder, Chairman and Managing Director of the
        Company. Mr. Balakrishnan is also a Director of Rediffusion Dentsu Young
&
Rubicam Private Limited, India Abroad Publications, Inc., India In New York,
        Inc., India Abroad Publications (Canada) Inc., Value Communications Corporation,
        VuBites India Private Limited and Ajit Balakrishnan Foundation. Mr. Balakrishnan
        is also the Chairman of the Board of Governors of The Indian Institute of
        Management Calcutta and Chairman of the Working Group of Internet
        Governance set up by the Government of India. 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, primarily
        as
        Chief Financial Officer of Sterlite Optical Technologies-Limited. 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 holds a Bachelors degree in Commerce
        (Honors) 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. He has been awarded the India CFO Award 2006 for “Excellence in
        Finance in an SME” instituted by IMA India.
 
 **Diwan
        Arun Nanda** has been a director of the Company since its incorporation
        in 1996. Mr. Nanda is also a Director of Rediffusion Dentsu, Young & Rubicam
        Private Ltd., Wunderman India Private Limited, Rediffusion Dentsu, Young
&
Rubicam Pvt. Ltd. Srilanka, Everest Brand Solutions Pvt. Ltd., Clariant
        Chemicals (India) Limited, Eveready Industries India Ltd, Kingfisher Airlines
        Limited and Mastek Limited. Mr. Nanda is also a director of several other
        Indian
        companies. 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 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 two Mumbai law firms, Mahimtura
&
Co. and Shah Desai Doijode & Phatarphekar. Mr. Phatarphekar is also a
        director of several other Indian companies.
  53
  **Pulak
        Prasad**has been a director of the Company since 1999. He is the Founder
        and Managing Director  of Nalanda Capital, a Singapore based fund
        management and advisory company. He is also a Director of Bharti Airtel Ltd.
        Prior to creating Nalanda, Mr. Prasad was Managing Director and co-head of
        the
        India office of Warburg Pincus, covering their India, South and South East
        Asian
        operations. He joined Warburg Pincus in 1998. From 1992 to 1998, he was a
        management consultant with McKinsey & Company in India, USA and South
        Africa. Mr. Prasad holds a Bachelor’s Degree in Technology 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 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.
        Earlier, he was the founding President of Wipro’s IT organizations. He holds a
        Bachelor’s 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. He
        serves on the Board of Infosys Technologies Limited, a NASDAQ-listed company,
        Infosys BPO Limited, Rediff Holdings, Inc. (USA), Mango Analytics Inc, OnMobile
        Asia Pacific Pvt. Ltd, Kovair Software Inc. 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 the Company since April 2006. Mr. Shah
        is the Chairman, Chief Executive Officer and Managing Director of Edelweiss
        Capital Limited. Edelweiss Capital is a leading financial services company
        based
        in Mumbai, India, whose businesses include investment banking, securities
        and
        commodities broking, insurance advisory and equities investments. Mr. Shah
        holds
        a Bachelors degree in Science from Bombay University and a Post Graduate
        Diploma
        in Management from the Indian Institute of Management, Ahmedabad. Previously,
        he
        was Head of Research, Prime Securities and a Manager at
        ICICILimited. He has also handled a World Bank aided
        program for export-oriented projects at ICICI.  Mr. Shah has 18 years of
        experience in public and private markets in India and has worked with more
        than
        100 companies and advised them on a wide range of issues, financial and
        non-financial. He has served on various client company boards including the
        compensation and audit committees of such companies.
 
 **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:
 
 ·
              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.
   54
  ·
              The
                  remaining directors on the Board of Directors are non-permanent
                  directors
                  who are appointed by shareholders and retire by rotation.  Pulak
                  Prasad and Ashok Narasimhan retired by rotation and were re-elected
                  by the
                  shareholders at our last annual general meeting held on September
                  29,
                  2006. Diwan Arun Nanda and Sunil Phatarphekar will retire by rotation
                  at
                  our next Annual General Meeting of shareholders, which is scheduled
                  for
                  September 21, 2007.
  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. On August 19, 2005, we adopted amendments
        to
        the code of ethics for our directors.
 
 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; and Rashesh C. Shah.
 
 Effective
        May 11, 2007, Ashok Narasimhan resigned as a member of the audit committee,
        although he continues to serve on the Board of Directors.
 
 **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*
   55
  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*
 
 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.
   56
  *(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*
 
 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, 2007, we had 293 employees and full-time consultants. Of such
        employees, 111 are in our sales and marketing teams, 75 are creative and
        editorial, 46 are dedicated to technology and product development, 23 are
        dedicated to e-commerce, 12 are dedicated to production and circulation and
        26
        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:
 
 **Department**
              **Mumbai**
              **Other
                  Indian cities**
              **United
                  States**
              **Total**Creative
              9
              5
              --
              14Editorial
              46
              6
              9
              61Production
                  and
                  Circulation
              --
              --
              12
              12Sales
                  and
                  Marketing
              80
              21
              10
              111Technology
                  and Product Development
              44
              --
              2
              46E-Commerce
              22
              1
              --
              23Administration
                  and
                  others
              19
              1
              6
              26Total
              220
              34
              39
              293
 
 **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 2007, 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 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, 2007; and(ii)
              Equity
                Shares arising out of warrants granted to such officers and directors
                under the ESOP during the fiscal year ended March 31,
                2007.
  
 57
 
 
 **Name**
              **Salary
                  and other compensation**
              **Equity
                  Shares arising out of options granted during the
                  year**
              **Expiration
                  date**No.
                  of shares granted under 2006 ESOP plan
              Grant
                  price per share (Rs.)
              No.
                  of shares granted under 2006 ADR ESOP plan
              Grant
                  price per share (US$)Ajit
                  Balakrishnan
              US175,000(1)
              -
              -
              -
              -
              -Joy
                  Basu
              92,010(2)
              4,000
              10
              9,500
              26.16
              October  2016Sridar
                  A. Iyengar
              25,000(1)
              -
              -
              -
              -
              -Sunil
                  Phatarphekar
              10,000(1)
              -
              -
              -
              -
              -
 
 (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.
 (2)
              This
                  does not include the fair value of stock options granted to Mr.
                  Basu.
 
 **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 years ended March 31, 2006 and 2007, 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
 
 *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 and our shareholders in February 1999. A total of 198,000
        Equity
  58
  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 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.
 
 *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 years ended March 31, 2006 and 2007, we did not grant any awards
        under the 2002 Plan. During the fiscal year ended March 31, 2007, warrants
        equivalent to 25,125 Equity Shares were exercised.
  59
  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.
 
 *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. 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. 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.  During the fiscal year ended March 31, 2007,
        we granted 92,500 options equivalent to the right to purchase 46,250 Equity
        Shares at a weighted average exercise price of Rs.1,008
        (US$23.13).  During the same period, warrants equivalent to 39,075
        Equity Shares were exercised and warrants equivalent to 11,875 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. During the fiscal year ended March 31,
        2007,
        we have granted 123,000 options under the ESOP 2006, equivalent to the right
        to
        purchase 123,000 Equity Shares at an exercise price of Rs.10 (US$0.23) per
        share. 58,000 and 65,000 options will vest at a rate of 25% and 20%,
        respectively on each successive anniversary of the grant date, 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.
 
 *2006
        ADR Linked Employee Stock Option Plan*
 
 Our
        2006 ADR Linked Employee Stock Option Plan (the “ADR Linked ESOP 2006”) allows
        for the grant to our employees of options to purchase our ADRs representing
        Equity Shares of the Company. Each option granted gives the employee the
        right
        to purchase a specified number of our ADRs under the ADR Linked ESOP 2006.
        The
        ADR Linked ESOP 2006 was adopted and approved by our Compensation Committee
        on
        October 3, 2006 in accordance with the approval granted by our shareholders
        on
        March 31, 2006. A total of 335,000 Equity Shares (equivalent to 670,000 ADRs)
        were approved for issuance under the ADR Linked ESOP 2006. During the fiscal
        year ended March 31, 2007, we granted 281,500 options under the ADR Linked
        ESOP
        2006, equivalent to the right to purchase 140,750 Equity Shares at an exercise
        price of Rs.1,207 (US$27.69) per share. These options will vest at a rate
        of 25%
        on each successive anniversary of the grant date until fully
        vested.
 
 ADRs
        acquired upon the exercise of options granted pursuant to the terms of the
        ADR
        Linked 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
   60
  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.
 
 *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 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, 2005, 2006 and
        2007
        and the unfunded benefit liability as of March 31, 2007 are as
        follows:
 
 **Fiscal
                    years ended March 31,****2005**
              
              **2006**
              
              **2007**Change
                  in benefit obligationBenefit
                  obligation at the beginning of the
                year
              US$88,021
              
              US$96,524
              
              US$105,679Actuarial
                  (gain)
                  loss
              (6,229)
              
              5,618
              
              81,386Service
                  cost
              16,923
              
              21,479
              
              21,769Interest
                  cost
              5,675
              
              7,210
              
              7,950Benefits
                  paid
              (7,647)
              
              (22,942)
              
              (23,997)Effect
                  of exchange rate
                  changes
              (219)
              
              (2,210)
              
              5,990Benefit
                  obligation at the end of the year
              US$96,524
              
              US$105,679
              
              US$198,777Unrecognized
                  net actuarial loss (gain)
              8,517
              
              2,976
              
              --Accrued
                  pension
                  liability
              US$105,041
              
              US$108,655
              
              US$198,777
 
 
 The
        assumptions used in accounting for
        gratuity in the fiscal years ended March 31, 2005, March 31, 2006 and March
        31,
        2007 were as follows:
 
 **Fiscal
                    years ended March 31,****2005**
              
              **2006**
              
              **2007**Discount
                  rate
              8%
              
              8%
              
              10%Rate
                  of increase in compensation
              8%
                  for first year and 6% thereafter
              
              8%
                  for first
                2
                  years and 5% thereafter
              
              10%
                  for first
                5
                  years and 7% thereafter
 
 *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. Amounts
        contributed by the Company to the provident fund, in the aggregate, were
        US$87,710, US$ 113,222   and US$ 166,314 for
        the  fiscal years ended March 31, 2005, 2006 and 2007
        respectively.
  *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.
 
 61
  **RELATED
        PARTY TRANSACTIONS**
  
 Five
        of our largest shareholders beneficially hold an aggregate of approximately
        59.9% 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
        and Mobile Revenues**
 
 During
        the fiscal years ended March 31, 2007, 2006 and 2005, we received US$31,281,
        US$43,299, and US$53,991, 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.
 
 During
        the fiscal year ended March 31, 2007, we received US$19,800 in mobile revenues
        from OnMobile Asia Pacific Pvt. Ltd., a company in which Mr, Sridar Iyengar
        is a
        director.
  
 62
 
 **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
  63
  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.
 
 ·
              “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.
  ·
              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.
  ·
              ECBs
                  may be secured by assets of the borrower subject to compliance
                  with the
                  relevant regulations issued by the Reserve Bank of
                  India.
  ·
              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.
  ·
              Proceeds
                  from ECBs in excess of US$20 million may not be utilized for Indian
                  Rupee-denominated expenditure without the prior approval of the
                  Reserve
                  Bank of India.
  ·
              Preference
                  shares and convertible debentures that are not mandatorily and
                  fully
                  convertible into equity shares would be treated as ECBs for all
                  purposes
                  under the law.
  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
   64
  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.
  **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:
 
 ·
              The
                  facility to sell the shares would be available pari passu to all
                  categories of shareholders.
  ·
              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.
  ·
              The
                  proposal for divestment of the shares would have to be approved
                  by a
                  special resolution of the Indian
                  company.
  ·
              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.
  ·
              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.
  
 65
 
 **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. From June 24,
        2002
        to October 6, 2006, our ADSs traded on the NASDAQ Capital Market (formerly
        the
        NASDAQ Small Cap Market) under the same ticker symbol. Beginning on October
        9,
        2006, our ADSs have been trading on the NASDAQ Global Market. Each ADS
        represents one-half of one Equity Share.
 
 The
        number of outstanding Equity Shares as of March 31, 2007, was 14,603,800.
        We
        have been informed by our depository that as of March 31, 2007, there were
        approximately 26 record holders of ADRs evidencing 8,907,200 ADSs (representing
        4,453,600 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 to October 6, 2006 and on the NASDAQ
        Global Market since October 9, 2006.
 
 **Annual
                  and Quarterly high-low price history:****Price
                  Per ADS**
                
                **(in
                  U.S. dollars)**High
              
              LowFiscal
                  year ended March 31,
                  2003
              4.78
              
              0.21Fiscal
                  year ended March 31,
                  2004
              13.87
              
              2.76Fiscal
                  year ended March 31,
                  2005
              15.47
              
              5.25Fiscal
                  year ended March 31,
                  2006
              33.75
              
              6.07First
                  Quarter (April 2005 to June 2005)
              8.80
              
              6.07Second
                  Quarter (July 2005 to September 2005)
              17.92
              
              7.20Third
                  Quarter (October 2005 to December 2005)
              22.12
              
              13.50Fourth
                  Quarter (January 2006 to March 2006)
              33.75
              
              14.70Fiscal
                  year ended March 31,
                  2007
              25.00
              
              11.16First
                  Quarter (April 2006 to June 2006)
              25.00
              
              11.22Second
                  Quarter (July 2006 to September 2006)
              16.72
              
              11.16Third
                  Quarter (October 2006 to December 2006)
              21.19
              
              14.23Fourth
                  Quarter (January 2007 to March 2007)
              20.32
              
              15.35Fiscal
                  year ending March 31,
                  2008First
                  Quarter (April 2007 to June 2007)
              19.20
              
              15.90Second
                  Quarter (July 2007 to September 21, 2007)
              27.50
              
              13.68
 
 
 **Monthly
                  high-low price history for previous six months:****Price
                  Per ADS**
                
                **(in
                  U.S. dollars)**Previous
                  six months
              High
              
              LowMarch
                  2007
              17.47
              
              15.35April
                  2007
              18.55
              
              16.56May
                  2007
              19.20
              
              15.90June
                  2007
              18.56
              
              17.00July
                  2007
              27.50
              
              15.82August
                  2007
              16.88
              
              13.68September
                  2007 (until September 21, 2007)
              16.43
              
              14.57
 
 66
  **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
        July 2, 2007, the Reserve Bank 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.
 
 **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
  67
  Foreign Institutional Investors and may invest in securities
        of Indian companies pursuant to the Foreign Direct Investment route discussed
        above, but in order to make Portfolio Investments freely and to remit funds
        into
        and outside India without an approval for each remittance, registration as
        an
        FII or as a ‘sub-account’ of an FII is necessary.
  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.
 
 FIIs
        are also permitted to purchase shares and debentures, subject the FII limits,
        of
        an Indian company through either:
 
 ·
              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
  ·
              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 so long as 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 Disclosure and Investor Protection (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:
 
 ·
              *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
   68
  ·
              in
                  its listing agreement will be eligible to raise funds in the domestic
                  market by placing securities with Qualified Institutional Buyers,
                  or
                  QIBs.
  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.
 
 *·*
              *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.
  *·*
              *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.
  *·*
              *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.
  *·*
              *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.
  ·
              *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
        International Monetary Fund (“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.
  69
   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 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.
   70
  **PRINCIPAL
        SHAREHOLDERS**
 
 The
        following table provides information relating to the beneficial ownership
        of our
        equity shares for:
  ·
              each
                  of the executive officers named in the summary compensation table
                  and each
                  of our directors;
 
 ·
              all
                  of our directors and executive officers as a group;
                  and
 
 ·
              each
                  person or group of affiliated persons who is known by us to beneficially
                  own 5.0% or more of our Equity
                  Shares.
 
 **Shares
                      Beneficially Owned**
                    **As
                      of August 16, 2007**
                  
                  **Shares
                      Beneficially Owned**
                    **As
                      of August 10, 2006**
                  
                  **Shares
                      Beneficially Owned**
                    **As
                      of June 9, 2005****Name
                      of Beneficial Owner**
                  
                  **Number
                      of**
                    **Equity**
                    **Shares
                      held**
                  
                  **Percent
                      of total Equity Shares outstanding**
                  
                  **Number
                      of Equity Shares held**
                  
                  **Percent
                      of total Equity Shares outstanding**
                  
                  **Number
                      of Equity Shares held**
                  
                  **Percent
                      of total Equity Shares outstanding***Officers
                      and Directors*Ajit
                      Balakrishnan (1)(1A)
                      (1B)(1C)
                  
                  3,463,982
                  
                  24%
                  
                  3,463,982
                  
                  24%
                  
                  3,463,982
                  
                  27%Diwan
                      Arun Nanda(1)
                  
                  3,444,742
                  
                  24%
                  
                  3,444,742
                  
                  24%
                  
                  3,444,742
                  
                  27%Pulak
                      Prasad(2)
                  
                  --
                  
                  --
                  
                  2,008,000
                  
                  14%
                  
                  2,008,000
                  
                  16%All
                      Directors and Officers as a Group
                      (2
                        persons)
                  
                  6,908,724
                  
                  48%
                  
                  6,716,722
                  
                  46%
                  
                  6,716,722
                  
                  52%*Other  Shareholders
                      holding more than 5 % shareholding*Rediffusion
                      Holdings Private Limited(1)
                  
                  2,200,002
                  
                  15%
                  
                  2,200,002
                  
                  15%
                  
                  2,200,002
                  
                  17%Draper-India
                      International
                  
                  2,200,000
                  
                  15%
                  
                  2,200,000
                  
                  15%
                  
                  2,200,000
                  
                  17%Queenswood
                      Investments Ltd
                  
                  2,008,000
                  
                  14%
                  
                  2,008,000
                  
                  14%
                  
                  2,008,000
                  
                  16%










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.




(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)
            With
                effect from January 1, 2007, Pulak Prasad has ceased to be an employee
                of
                Warburg Pincus LLC and has represented that he has no beneficial
                interest
                in the outstanding equity shares held by Queenswood Investments
                Limited.






71




Joy
      Basu, Chief Financial Officer of
      the Company, holds stock options which are exercisable for less than 1% of
      the
      beneficial ownership in the Company.




Sunil
      N. Phatarphekar, a director of the Company, holds  stock options which
      are exercisable for less than 1% of the beneficial ownership in the
      Company.




Sridar
      Iyengar, a director of the Company, holds stock options which are exercisable
      for less than 1% of the beneficial ownership in the Company.




Ashok
      Narsimhan, a director of the Company, holds stock options which are exercisable
      for less than 1% of the beneficial ownership in the Company.




Abhay
      Havaldar, an ex-director of the Company (resigned on January 25, 2005),
      holds stock options which constitute less than 1% of the beneficial
      ownership in the Company.




Our
      ADSs are currently listed and traded on the NASDAQ Global Market and each ADS
      is
      represented by one-half of one Equity Share of par value of Rs.5 per
      share.




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, 2007,
      8,907,200  ADSs were held by approximately 26 record holders of ADRs
      in the United States.






72




**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, 2007 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 16.995%, 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.






73




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% and secondary and higher Education
      Cess of
      1% resulting in an aggregate Education Cess of 3%. 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 3%) 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 3%) 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 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.




74




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 12.36%. 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,
      and non-United States income and other tax considerations of an investment
      in
      our ADSs or our Equity Shares.




75




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, 2008, 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, 2009
      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 “Passive




76




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:





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






77





·
            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





·
            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 Global 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.








78




**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, 2007, 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:





·
            approximately
                US$25.0 million for strategic acquisitions and investments, including
                costs of acquisitions (US$0.6 million was used during the fiscal
                2007);





·
            approximately
                US$28.2 million to enhance our content and service offerings and
                promote
                our brands (approximately US$5.9 million was utilized during the
                fiscal
                2007); and





·
            approximately
                US$20.3 million in capital expenditures (approximately US$7.8 million
                was
                used during the fiscal 2007).





As
      of March 31, 2007, approximately US$53.5 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 in connection with the issuance and
      distribution of registered securities for underwriter’s discounts and
      commissions or paid to any such individuals in connection with the construction
      or purchase and installation of plant, building and facilities, machinery and
      equipment and acquisition of other businesses.





79




**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.





**Management’s
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Internal control over financial reporting is the process
      designed by, or under the supervision of, our Chairman, who serves as our
      Principal Executive Officer, and our Chief Financial Officer, and effected
      by
      our management and other personnel, to provide reasonable assurance regarding
      the reliability of financial reporting and the preparation of financial
      statements for external purposes in accordance with generally accepted
      accounting principles, and includes those policies and procedures that (i)
      pertain to the maintenance of records that in reasonable detail accurately
      and
      fairly reflect our transactions and dispositions of assets; (ii) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being made
      only in accordance with the authorization of our management and directors;
      and
      (iii) provide reasonable assurance regarding prevention or timely detection
      of
      unauthorized acquisition, use or disposition of our assets that could have
      a
      material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions or that the degree of compliance
      with established policies or procedures may deteriorate.





Under
      the supervision and with the participation of our management, including our
      Chairman and our Chief Financial Officer, we conducted an assessment of the
      effectiveness of our internal control over financial reporting as of March
      31,
      2007. In making this assessment, our management primarily used the criteria
      set
      forth in Internal Control - Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (the “COSO”). A material
      weakness is a control deficiency, or combination of control deficiencies, that
      results in more than a remote likelihood that a material misstatement of the
      annual or interim financial statements will not be prevented or detected. Our
      management has concluded that we maintained effective internal control over
      financial reporting as of March 31, 2007.





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.


80




**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, 2005, 2006 and 2007.





**Fiscal
                  year ended March 31,****2005**
            
            **2006**
            
            **2007**Audit
                Fee
            US$131,959
            
            US$107,127
            
            US$116,742Audit-Related
                Fees
            2,570
            
            --
            
            5,597Tax
                Fees
            10,058
            
            11,276
            
            16,538All
                other Fees
            --
            
            161,205
            
            --





Audit
      fees represents the aggregate fees for Deloitte in connection with the audits
      of
      our annual consolidated financial statements, the reviews of our quarterly
      financial statements and statutory audits.





Audit-related
      fees represents payments for statutory certification work for the fiscal years
      ended March 31, 2005 and 2007, as well as for obtaining our auditors’ consent on
      our Form F-3 Registration Statement filed during the fiscal year ended March
      31,
      2005.  Tax fees primarily comprise fees for tax audit and permitted
      tax 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 three fiscal years (since the emergence of the pre-approval rules),
      have been pre-approved by our Audit Committee.






81




**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, 2007 was Rs.43.10 per US$1.00. The
      reporting currency for the financial statements is the U.S. dollar and the
      translation from Indian Rupees to U.S. dollars have been performed using rates
      specified by the Reserve Bank of India.







82




**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, 2007, 14,603,800 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:
 
 ·
              more
                  than two such registrations or qualifications pursuant to such
                  demand
                  registration rights;
   83
 
 
 ·
              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
 
 ·
              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:
 
 ·
              more
                  than once in a twelve month period;
 
 ·
              unless
                  the registration relates to securities that are valued in excess
                  of
                  US$1,000,000; or
 
 ·
              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 are traded on the NASDAQ Global 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 Companies Act further




84




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:




·
            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;





·
            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





·
            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,




85




every
      shareholder entitled to vote and present 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


86




they
      have sufficient cause to do so. If our directors
      refuse to 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.




87




*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 Sridar Iyengar, Ashok Narasimhan, Pulak Prasad and 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.





**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.




88


**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
            
            2006
                ADR Linked Employee Stock Option Plan.*4.7
            
            Form
                of Indemnification Agreement.*******4.8
            
            Indemnification
                Agreement dated November 8, 2005 between Rediff.com and Sridar A.
                Iyengar.*******4.9
            
            Indemnification
                Agreement dated November 8, 2005 between Rediff.com and Ashok
                Narasimhan.*******4.10
            
            Indemnification
                Agreement dated November 8, 2005 between Rediff.com and Pulak Chandan
                Prasad.*******4.11
            
            Indemnification
                Agreement dated November 8, 2005 between Rediff.com and Joy
                Basu.*4.12
            
            Sublease
                dated July 5, 1999 between Shreenathji Balaji Computech Private Limited
                and Rediff.com.*4.13
            
            Letter
                Agreement dated December 28, 1998 between Rediffusion-Dentsu, Young
&
                Rubicam Limited and Rediff.com.*4.14
            
            Promoters
                Agreement dated January 9, 1996 between Ajit Balakrishnan and Diwan
                Arun
                Nanda.**4.15
            
            Stock
                Purchase Agreement among Rediff.com, ValuCom and shareholders of
                ValuCom
                dated March 21, 2001.**4.16
            
            Stock
                Purchase Agreement among Rediff.com, India Abroad and shareholders
                of
                India Abroad dated March 21, 2001, as amended on April 27,
                2001.**4.17
            
            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.*****4.18
            
            Agreement
                for sale of assets of Value Communications Corporation dated April
                8,
                2004.******4.19
            
            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.†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.


89





*
            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.*******
            Incorporated
              by reference to exhibits filed with the Registrant’s Form 20-F for the
              fiscal year ended March 31, 2006.†
            Filed
              herewith.









90





**INDEX
      TO FINANCIAL STATEMENTS**







PageReport
              of Independent Registered Public Accounting Firm on the Consolidated
              Financial Statements
            F-2Consolidated
                Balance Sheets as of March 31, 2006 and 2007
            F-3Consolidated
                Statements of Operations for the years ended March 31, 2005, 2006
                and
                2007
            F-4Consolidated
                Statements of Changes in Shareholders’ Equity for the years ended March
                31, 2005, 2006 and 2007
            F-6Consolidated
                Statements of Cash Flows for the years ended March 31, 2005, 2006
                and
                2007
            F-7Notes
                to Consolidated Financial Statements
            F-8






F-1




REPORT
        OF INDEPENDENT REGISTERED 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, 2006 and 2007 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, 2007. 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 audit.
 
 We
        have
        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, 2006 and 2007 and the consolidated
        results of its operations and its cash flows for each of the years in the
        three
        year period ended March 31, 2007 in conformity with the 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
        26, 2007




F-2




**REDIFF.COM
      INDIA LIMITED**





**CONSOLIDATED
      BALANCE SHEETS**


**as
      of March 31, 2006 and 2007**





**March
                  31,****2006**
            
            **2007****Assets****Current
                Assets**Cash  and
                cash
                equivalents
            US$53,093,635
            
            US$53,546,300Trade
                accounts receivable, (net of allowances of
              US$1,766,424  and
                US$ 2,697,334at March 31,2006
              and
                2007,
                respectively)
            5,376,373
            
            10,671,318Prepaid
                expenses and other current assets (See Note 4)
            1,665,678
            
            1,633,588Total
                current
                assets
            60,135,686
            
            65,851,206Property,
                plant and equipment - net (See Note 5)
            5,531,672
            
            9,963,029Investments
            -
            
            581,054Goodwill
                (See Note
                6)
            7,314,468
            
            7,314,468Recoverable
                income
                taxes
            515,834
            
            1,833,709Other
                assets (See Note
                7)
            612,613
            
            949,265**Total
                assets**
            US$74,110,273
            
            US$86,492,731**Liabilities
                and Shareholders' equity****Current
                liabilities**Accounts
                payable and accrued liabilities
            US$
                5,689,259
            
            US$
                7,644,191Customer
                advances and unearned revenues
            1,549,310
            
            1,288,902Total
                current liabilities
            7,238,569
            
            8,933,093Other
                liabilities
            1,428
            
            336,889**Total
                liabilities**
            7,239,997
            
            9,269,982**Commitments
                and contingencies****Shareholders'
                equity**Equity
                shares: par value -- Rs.5,  Authorized:
              24,000,000
                shares at March 31,  2006 and 2007 ;Issued
                and outstanding: 14,539,600 shares and
              14,603,800
                shares at March 31, 2006 and 2007,
              respectively
                (See note
                9)
            1,726,318
            
            1,733,604Additional
                paid in
                capital
            122,233,641
            
            123,942,398Accumulated
                other comprehensive
                loss
            (2,480,881)
            
            (806,979)Accumulated
                deficit
            (54,608,802)
            
            (47,646,274)**Total
                shareholders' equity**
            66,870,276
            
            77,222,749**Total
                liabilities and shareholders' equity**
            US$74,110,273
            
            US$86,492,731





*See
      accompanying notes to consolidated financial statements*




F-3





**REDIFF.COM
      INDIA LIMITED**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**For
      each of the years ended March 31, 2005, 2006 and 2007**


**Years
                      ended March 31,****2005**
                
                **2006**
                
                **2007****Operating
                    revenues**India
                    Online
                US$
                    6,556,320
                
                US$
                    12,174,927
                
                US$
                    20,759,227U.S.
                    Publishing
                6,070,344
                
                6,525,753
                
                7,916,298Total
                    revenues
                12,626,664
                
                18,700,680
                
                28,675,525**Cost
                    of revenues**India
                    Online
                1,593,218
                
                1,593,894
                
                2,357,178U.S.
                    Publishing
                3,519,906
                
                3,445,540
                
                3,059,138Total
                    cost of revenues
                5,113,124
                
                5,039,434
                
                5,416,316**Operating
                    expenses**Sales
                    and marketing
                2,278,297
                
                3,474,971
                
                5,856,640Product
                    development
                1,832,394
                
                2,578,339
                
                3,845,304General
                    and administrative
                5,116,020
                
                6,629,657
                
                10,493,022Total
                    operating expenses
                9,226,711
                
                12,682,967
                
                20,194,966Operating
                    (Loss) / income
                (1,713,171)
                
                978,279
                
                3,064,243Other
                    income (expense), net:Interest
                    income
                518,958
                
                1,225,416
                
                3,726,222Foreign
                    exchange gain (loss), net
                5,055
                
                (975,488)
                
                133,873Miscellaneous
                    income
                7,272
                
                2,253
                
                121,264531,285
                
                252,181
                
                3,981,359(Loss)/
                    income from continuing operations before income taxes
                (1,181,886)
                
                1,230,460
                
                7,045,602Income
                    tax expense
                (37,994)
                
                (17,603)
                
                (83,074)(Loss)/
                    income from continuing operations
                US$(1,219,880)
                
                US$
                    1,212,857
                
                US$
                    6,962,528Loss
                    from discontinued operations (See Note 3)
                US$(207,710)
                
                -
                
                -Net
                    (Loss) / income
                US$(1,427,590)
                
                US$
                      1,212,857
                
                US$
                      6,962,528Weighted
                    average number of equity shares -- basic
                12,850,424
                
                13,487,212
                
                14,543,360Weighted
                    average number of equity shares -- Diluted
                12,850,424
                
                13,763,989
                
                14,924,267(Loss)
                    / profit per share – basicContinuing
                    operations
                Cents
                    (10.00)
                
                Cents
                    8.99
                
                Cents
                    47.88discontinued
                    operations
                (1.00)
                
                -
                
                -(Loss)
                    / profit per share – basic and diluted
                Cents
                      (11.00)
                
                Cents
                      8.99
                
                Cents
                      47.88(Loss)
                    / profit per share –dilutedContinuing
                    operations
                Cents
                    (10.00)
                
                Cents  8.81
                
                Cents
                    46.66discontinued
                    operations
                (1.00)
                
                -
                
                -(Loss)
                    / profit per share –diluted
                Cents
                      (11.00)
                
                Cents
                      8.81
                
                Cents
                      46.66(Loss)
                    / profit per ADS – basicContinuing
                    operations
                Cents
                    (5.00)
                
                Cents
                    4.50
                
                Cents
                    23.94discontinued
                    operations
                (0.50)
                
                -
                
                -(Loss)
                    / profit per ADS -- (where 2  ADSs are equal   to
                    1 equity share) – basic
                Cents
                      (5.50)
                
                Cents
                      4.50
                
                Cents
                      23.94
   F-4
 
 (Loss)
                    / profit per ADS – dilutedContinuing
                    operations
                Cents
                    (5.00)
                
                Cents
                    4.41
                
                Cents
                    23.33discontinued
                    operations
                (0.50)
                
                -
                
                -(Loss)
                    / profit per ADS -- (where 2 ADSs are equal   to 1 equity
                    share) -- diluted
                Cents
                      (5.50)
                
                Cents
                      4.41
                
                Cents
                      23.33







*See
      accompanying notes to consolidated financial
      statements*


F-5




**REDIFF.COM
      INDIA LIMITED**





**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY**


**For
      each of the years ended March 31, 2005, 2006 and 2007**





**Equity
                    Shares****(See
                    note 9)****Number
                    of Shares**
                
                **Amount**
                
                **Additional
                    Paid in Capital**
                
                **Accumulated
                    other Comprehensive Loss**
                
                **Deferred
                    CompensationExpense**
                
                **Accumulated**
                  **Deficit**
                
                **Total****Balance,
                    as of April 1, 2005**
                12,827,425
                
                US$1,537,865
                
                US$76,973,587
                
                US$(3,089,310)
                
                US$
                    (710)
                
                US$(54,394,069)
                
                US$21,027,363Amortization
                    of compensation related to stock option grants
                --
                
                --
                
                --
                
                --
                
                448
                
                --
                
                448Stock
                    options exercised
                52,625
                
                6,073
                
                296,852
                
                --
                
                --
                
                --
                
                302,925Net
                    loss
                --
                
                --
                
                --
                
                --
                
                --
                
                (1,427,590)
                
                (1,427,590)Other
                    comprehensive income translation adjustment
                --
                
                --
                
                --
                
                (106,643)
                
                --
                
                --
                
                (106,643)**Balance,
                    as of March 31, 2005**
                12,880,050
                
                US$1,543,938
                
                US$77,270,439
                
                US$(3,195,953)
                
                US$
                    (262)
                
                US$(55,821,659)
                
                US$19,796,503Amortization
                    of compensation related to stock option grants
                --
                
                --
                
                --
                
                --
                
                262
                
                --
                
                262Issue
                    of Shares and options
                1,659,550
                
                182,380
                
                44,963,202
                
                --
                
                --
                
                --
                
                45,145,582Net
                    Profit
                --
                
                --
                
                --
                
                --
                
                --
                
                1,212,857
                
                1,212,857Other
                    comprehensive income translation adjustment
                --
                
                --
                
                --
                
                715,072
                
                --
                
                --
                
                715,072**Balance,
                    as of March 31, 2006**
                14,539,600
                
                US$1,726,318
                
                US$122,233,641
                
                US$(2,480,881)
                
                --
                
                US$(54,608,802)
                
                US$66,870,276Amortization
                    of compensation related to stock option grants
                --
                
                --
                
                --
                
                --
                
                --
                
                --
                
                --Stock
                  compensation
                --
                
                --
                
                1,233,127
                
                --
                
                --
                
                --
                
                1,233,127Stock
                  options exercised
                64,200
                
                7,285
                
                475,630
                
                --
                
                --
                
                --
                
                482,915Net
                    Profit
                --
                
                --
                
                --
                
                --
                
                --
                
                6,962,528
                
                6,962,528Other
                    comprehensive income translation adjustment
                --
                
                --
                
                --
                
                1,673,904
                
                --
                
                --
                
                1,673,904**Balance,
                    as of March 31, 2007**
                14,603,800
                
                US$1,733,604
                
                US$123,942,398
                
                US$(806,979)
                
                --
                
                US$(47,646,274)
                
                US$77,222,749











*See
      accompanying notes to consolidated financial statements*





F-6





**REDIFF.COM
      INDIA LIMITED**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      each of the years ended March 31, 2005, 2006 and 2007**





**Years
                  ended March 31,****2005**
            
            **2006**
            
            **2007****Cash
                flows from operating activities**
              Net
                (loss)/
                Profit
            US$(1,427,590)
            
            US$1,212,857
            
            US$6,962,528Loss
                from discontinued
                operations
            207,710
            
            -
            
            --Adjustments
                relating to continuing operations to reconcile net (loss)/ profit
                to net
                cash (used in) /generated  from continuing
                operations:Depreciation
                and
                amortization
            735,232
            
            1,514,471
            
            3,105,878Allowances
                for doubtful debts
            218,514
            
            401,818
            
            930,910Profit
                on sale of investments
            --
            
            --
            
            113,556Loss
                on sale of property, plant and
                equipment
            5,859
            
            25,125
            
            17,096Stock
                based compensation
                expense
            448
            
            262
            
            1,233,127Changes
                in assets and liabilities:Trade
                accounts receivable
                (gross)
            (1,432,095)
            
            (2,684,819)
            
            (6,225,855)Prepaid
                expenses and other current
                assets
            (745,091)
            
            191,196
            
            32,092Accounts
                payable and accrued
                liabilities
            2,065,466
            
            824,440
            
            1,904,774Customer
                advances and unearned
                revenues
            317,285
            
            534,891
            
            125,211Recoverable
                income
                taxes
            (143,395)
            
            (237,805)
            
            (1,317,874)Other
                assets
            341,730
            
            (117,053)
            
            (336,652)Net
                cash generated from  continuing
                operations
            144,073
            
            1,663,403
            
            6,544,790Net
                cash (used in) / generated from discontinued operations
            (509,568)
            
            13,737
            
            -Net
                cash (used in )/ generated from operating
                activities
            (365,495)
            
            1,677,140
            
            6,544,790**Cash
                flows from investing activities**
              Payments
                to acquire property, plant and
                equipment
            (1,855,901)
            
            (4,618,379)
            
            (7,801,821)Purchase
                of
                investments
            —
            
            —
            
            (581,054)Cash
                received from sale of business/
                investments
            407,000
            
            -
            
            113,656Proceeds
                from sales of property, plant and
                equipment
            24,810
            
            33,645
            
            20,276Net
                cash used in investing
                activities
            (1,424,091)
            
            (4,584,737)
            
            (8,248,943)**Cash
                flows from financing activities**Net
                proceeds from issue of equity
                shares
            302,925
            
            45,145,582
            
            482,915Net
                cash provided by financing
                activities
            302,925
            
            45,145,582
            
            482,915Effect
                of exchange rate changes on
                cash
            (83,156)
            
            786,291
            
            1,673,903Net
                increase/ (decrease) in cash and cash
                equivalents
            (1,569,817)
            
            43,024,279
            
            452,665Cash
                and cash equivalents at the beginning of the
                year
            11,639,173
            
            10,069,356
            
            53,093,635Cash
                and cash equivalents at the end of the
                year
            US$
                  10,069,356
            
            US$
                  53,093,635
            
            US$
                  53,546,300Supplemental
                disclosure of cash flow information:Income
                taxes
                paid
            US$27,981
            
            US$30,053
            
            US$50,405Interest
                paid
            US$189
            
            US$ --
            
            US$ --








*See
      accompanying notes to consolidated financial statements*




F-7


**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 Global Market (formerly the NASDAQ National
      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-8




**(d)**  **Revenue
        recognition**


***India
      Online
      business***





India
      Online business includes revenues
      from online advertising and fee based services. Online advertising includes
      advertisement and sponsorships. 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 such e-mail messages are sent.





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 one time sign up fees for creating, designing and hosting the vendors'
      product information on the Company's website.





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. Billings in excess of costs and earnings are classified as
      unearned revenues.





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.




F-9




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 and India in New York newspapers, e-commerce
      marketplace related costs and related salaries. During the fiscal year ended
      March 31, 2007, the Company wrote back certain old accruals, which were no
      longer payable and which were earlier charged to costs of revenues amounting
      to
      US$ 66,296.





***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 year ended
      March
      31, 2006 and 2007, the Company wrote back certain old accounts payable and
      accruals amounting to US $ 54,000 and US$ 39,306 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$896,478, US$1,115,023
      and US$ 1,686,600 for the years ended March 31, 2005, 2006 and 2007
      respectively.





During
      the fiscal year ended March 31, 2006 and 2007, the Company wrote back certain
      old accounts payable amounting to US $ 25,000 and 21,364 respectively, 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,
      2006 and March 31, 2007, the Company wrote back certain old accruals amounting
      to US$30,000 and US$446,367 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, 2006 and 2007, of US $ 51,373,812 and US $
      51,020,141 respectively, which have a remaining maturity of less than one year,
      but which are redeemable without penalty on demand.




F-10




**(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 yearsComputer
                  equipment and software
              3
                  to 5 yearsOffice
                  equipment
              5
                  to 10 yearsVehicles
              8
                  yearsLeasehold
                  improvements
              6
                  yearsWebsite
                  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. Costs incurred for
      website development are accounted for in accordance with EITF 00-2 - "Accounting
      for Website development costs".


**(i)**  **Investments**




Equity
      securities with readily determinable fair market values that are not classified
      as held-to-maturity are classified as available-for-sale and recorded at fair
      value.





Equity
      securities that do not have readily determinable market values are accounted
      for
      at original cost. The fair values of these securities are not estimated if
      there
      are no events or changes in circumstances that may have a significant effect
      on
      the fair value.





Unrealized
      gains and losses on such securities, net of applicable taxes, are reported
      in
      other comprehensive income, a separate component of shareholders’
equity.





Securities
      for which there is no readily determinable fair value are recorded at cost,
      subject to an impairment charge for any other than temporary decline in value.
      The impairment is charged to statement of operations.




**(j)**  **Goodwill**




The
      Company capitalizes goodwill
      resulting from business combinations.





In
      accordance with the two-step
      methodology required by SFAS No. 142 "Goodwill and other Intangible Assets",
      the
      Company tests the carrying balances of goodwill and intangible assets that
      do
      not have a finite life for impairment annually or earlier upon the occurrence
      of
      a triggering event.





Where
      the management concludes that the
      carrying amounts are impaired, the impairment loss is recognized in the
      statement of operations.





**(k)**  **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.





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-11




**(l)**  **Earnings/
      Loss per share**




The
      Company reports basic and diluted
      earnings/ loss per share in accordance with SFAS No. 128, Earnings 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.





**(m)**  **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.





**(n)**  **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.





**(o)**  **Stock
      based compensation**




The
      Company has adopted the provisions
      of Statement of Financial Accounting Standard No. 123(R) *Share-Based Payment*(“SFAS 123R”) with effect from 1st
      April, 2006.
      Accordingly, the fair value method is used to account for   the
      compensation cost of stock options awards granted to officers, employees ,
      retainers in full time service of the Company and non-employee directors for
      their services as directors. Until March 31, 2006, the Company used the
      intrinsic value method specified under Accounting Principles Board Opinion
      No.
      25 *Stock Issued to Employees*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 123R to account for the
      compensation cost of stock options and awards granted to associates of the
      Company. Had compensation cost for the Company's 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) in 2005 and 2006
      earnings per share as reported would have been revised to the pro forma amounts
      indicated below:




F-12





**2005**
              
              **2006**Net
                  (Loss) Income as reported
              US$(1,427,590)
              
              US$1,212,857Add:
              Stock
                  compensation expenses included in reported net income
              448
              
              262Less:
              Total
                  stock-based  employee compensation expense determined under fair
                  value based method for all awards
              (1,259,234)
              
              (979,155)Adjusted
                  pro forma
              US$(2,686,376)
              
              US$
                  233,964(Loss)
                  Earnings per share –
                As
                  reportedBasic
              Cents
                  (11.00)
              
              Cents
                  8.99Diluted
              Cents
                  (11.00)
              
              Cents
                  8.81Adjusted
                  pro formaBasic
              Cents
                  (21.00)
              
              Cents
                  1.73Diluted
              Cents
                  (21.00)
              
              Cents
                  1.70








The
      adoption of SFAS 123(R) has resulted in recognition of US$1,233,127 as
      stock-based compensation cost for the fiscal year ended March 31, 2007. The
      impact on the consolidated financial statements of the Company for the fiscal
      year ended March 31, 2007 due to adoption of the standard is given
      below:





**2007**Income
                before income tax
            
            
            US$
            (1,233,127
            )Net
                income
            
            
            
            (1,233,127
            )Cash
                flows from operating activities
            
            
            
            (1,233,127
            )Earnings
                per equity share in cents—basic
            
            
            
            (8.48
            )Earnings
                per equity share in cents—diluted
            
            
            
            (8.26
            )Earnings
                per ADS in cents—basic
            
            
            
            (16.96
            )Earnings
                per ADS in cents—diluted
            
            
            
            (16.53
            )




The
      fair value of each options is
      estimated on the date of grant using the Black-Scholes model with the following
      assumptions:


F-13




**Years
                      ended March 31,****2005**
                  
                  **2006**
                  
                  **2007**Dividend
                      yield
                  0%
                  
                  0%
                  
                  0%Expected
                      life
                  4
                      Years
                  
                  1-4
                      Years
                  
                  4-5
                      YearsRisk
                      free interest rates
                  4.23%
                  
                  4.23%
                  
                  4.43-4.56%Volatility
                  111.17%
                  
                  104%
                  
                  91.68-
                      97.63%





See
      Note 15 - "Stock based compensation" for other proforma
      disclosures.





**(p)**  **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.





**(q)**  **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.




**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, 2005,
      2006
      and 2007. 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.





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**Operating
                revenues
            US$98,922
            
            US$
                -
            
            US$
                -Loss
                from operations before taxes (after eliminating inter-company
                transactions)
            (207,710)
            
            (-)
            
            -Loss
                from discontinued operations
            US$(207,710)
            
            US$
                (-)
            
            US$
                -







**4.**  **Prepaid
      Expenses and Other Current Assets**





Prepaid
      expenses and other current
      assets comprise of:




**As
                    of March 31,****2006**
                
                **2007**Prepaid
                    expenses
                US$659,103
                
                US$633,478Vendor
                    advances
                10,741
                
                201,913Rent
                    deposits
                294,317
                
                328,001
 Other
                      advances and deposits
                  139,861
                  
                  96,207Loans
                      to employees
                  73,885
                  
                  86,062Accrued
                      interest
                  487,771
                  
                  287,927US$  1,665,678
                  
                  US$  1,633,588
  F-14


**5.**
            **Property,
                Plant and Equipment**




Property,
      plant and equipment comprise
      of:


**As
                  of March 31,****2006**
              
              **2007**Furniture
                  and fixtures
              US$646,506
              
              US$480,443Computer
                  equipment and software
              11,986,472
              
              17,103,372Office
                  equipment
              334,860
              
              354,500Vehicles
              275,602
              
              305,538Leasehold
                  improvements
              286,705
              
              420,452Website
                  development costs
              675,685
              
              1,304,536Capital
                  work in progress
              270,770
              
              1,930,655Property,
                  plant and equipment, cost
              14,476,600
              
              21,899,496Accumulated
                  depreciation and amortization
              (8,944,928)
              
              (11,936,467)Property,
                  plant and equipment, net
              US$5,531,672
              
              US$9,963,029





The
      depreciation and
      amortisation  charge for the years ended March 31, 2005, 2006 and 2007
      was US$735,232, US$ 1,514,471 and US$ 3,105,878.





**6.**  **Goodwill**





The
      Company's goodwill amounts as of March 31, 2006 and 2007 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
      2005, 2006 and 2007 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.


**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.






F-15




**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.





Five
      of the Company's largest
      shareholders beneficially hold approximately 59.9% 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,****2005**
            
            **2006**
            
            **2007**Advertising
                and
                mobile revenues
            US$53,991
            
            US$43,299
            
            US$31,281





Balances
      with
      related parties include:


**As
                of March 31,****2006**
            
            **2007**Receivable
                for
                advertising income
            US$25,004
            
            US$5,129Loans
                to officers
            US$13,507
            
            US$172,020





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% per annum.





The
      required repayments of loans
      by employees are as follows:





**Years
                ended March
                31,**2008
            79,4132009
              2010
              2011
            54,638
              31,767
              5,9742012and
                thereafter
            227Total
                payments
            US$172,020





**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.





During
      the fiscal year ended March 31, 2007, the Company also issued 128,400 ADSs
      representing 64,200 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$ 482,915.




F-16




**10.**  **Retirement
      Benefits**





***Gratuity***





The
      Company provides for gratuity on an
      acturial valuation It has 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, 2005, 2006 and 2007. The measurement date used is March 31 of the
      relevant fiscal year.





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007***Change
                in benefit obligation*Benefit
                obligation at the beginning of the year......
            US
                $88,021
            
            US$
                96,524
            
            US$
                105,679Actuarial(gain)
                loss
            (6,229)
            
            5,618
            
            81,386Service
                cost
            16,923
            
            21,479
            
            21,769Interest
                cost
            5,675
            
            7,210
            
            7,950Benefits
                paid
            (7,647)
            
            (22,942)
            
            (23,997)Effect
                of exchange rate changes
            (219)
            
            (2,210)
            
            5,990Benefit
                obligation at the end of the year
            US$96,524
            
            US$
                105,679
            
            US$
                198,777Unrecognized
                net actuarial loss (gain)
            8,517
            
            2,976
            
            -Accrued
                liability
            US$
                105,041
            
            US$
                108,655
            
            US$
                198,777





Net
      gratuity cost for the years ended
      March 31, 2005, 2006 and 2007 comprise of the following:





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**Service
                cost
            US$16,923
            
            US$21,479
            
            US$21,769Interest
                cost
            5,675
            
            7,210
            
            7,950Recognized
                net actuarial (gain) loss
            (6,229)
            
            5,618
            
            81,386Net
                gratuity cost
            US$16,369
            
            US$34,307
            
            US$111,105





The
      assumptions used in accounting for
      gratuity in the years ended March 31, 2005, 2006 and 2007 were as
      follows:




**Years
                ended March 31,****2005**
            **2006**
            **2007****------**
            **------**
            **------**Discount
                rate
            8%
            8%
            10%Rate
                of increase in compensation
            8%
                for first yearand
                6% thereafter
            8%
                for first 2 years and 5% thereafter
            10%
                for first 5 years and 7% thereafter





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.





The
      following benefit payments, which
      reflect expected future service, as appropriate, are expected to be
      paid.




**Years
                  ending March 31,**2008
              US$16,6782009
              US$25,1662010
              US$34,251
 2011
                US$45,2862012-2017
                US$457,811




F-17




The
      expected benefits are based on the same assumptions used to measure the
      Company's benefit obligations as of March 31, 2007.





***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$87,710, US$
      113,222   and US$ 166,314 for the years ended March 31, 2005,
      2006 and 2007 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:





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**Office
                space
            US$
                436,798
            
            US$
                443,955
            
            US$
                505,465Computers
                and
                equipments
            18,378
            
            36,863
            
            36,720Residential
                apartments for employees
            110,865
            
            106,079
            
            185,315Total
                operating lease
                expense
            US$  566,041
            
            US$  586,937
            
            US$  727,500





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,**2008
            US$
              338,3592009
            US$
              98,8442010
              and after
            -




**12.**  **Income
      Taxes**





The
      income tax expense consists
      of:





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**Current
                taxes — including foreign (State tax)
            US$37,994
            
            US$17,603
            
            US$83,074Deferred
                taxes, net of
                allowance
            —
            
            —
            
            —Net
                income tax
                expense
            US$37,994
            
            US$17,603
            
            US$83,074





The
      tax effects of significant temporary differences that resulted in deferred
      tax
      assets and liabilities are as follows:




F-18


**As
                  of March 31,****2006**
              
              **2007**Depreciation
                  and
                  amortization
              3,237,131
              
              3,301,215


Net
                operating loss carry forwards
            US$10,537,097
            
            US$7,216,603Bad
                debt
                allowance
            605,047
            
            892,667Retirement
                benefits
            76,385
            
            226,847Others
            7,222
            
            7,20214,462,882
            
            11,644,534Less:
                Valuation
                allowance
            (14,462,882)
            
            (11,644,534)Net
                deferred tax
                asset
            US$           —
            
            US$           —





The
      Company increased the valuation
      allowance by US$659,013 for the fiscal year ended March 31, 2006 on account
      of
      increase in unabsorbed depreciation and amortization and bad debt allowances
      and
      decreased it by US$ 2,818,348 for the fiscal year ended March 31,
      2007  mainly on account of decrease in unabsorbed depreciation and net
      operating loss carry forwards as compared to the previous year.





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$ 3.26 million as of March
      31,
      2007 will expire between April 1, 2008 and March 31, 2015. The Company also
      has
      unabsorbed depreciation carry forwards as at March 31, 2007 aggregating to
      approximately US$ 3.2 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, 2007, ValuCom has net
      operating loss carry forwards available to offset future federal taxable income
      of US$2.9 million, which expire in years 2021 through 2025.





As
      of March 31, 2007, Rediff Holdings,
      Inc., has net operating loss carry forwards of approximately US$5.8 milion,
      for
      federal income tax purposes, which expire in years 2020 through
      2025.





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.




(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. 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, 2005, 2006 and 2007.






F-19








**Years
                  ended March 31,****2005**
              
              **2006**
              
              **2007****India
                  Online Business**
              
              **U.S.
                  Publishing Business**
              
              **Total**
              
              **India
                  Online Business**
              
              **U.S.
                  Publishing Business**
              
              **Total**
              
              **India
                  Online Business**
              
              **U.S.
                  Publishing Business**
              
              **Total**Revenues
                  from external customers:Advertising
              US$
                  4,135,225
              
              US$
                  5,567,102
              
              US$
                  9,702,327
              
              US$
                  8,502,520
              
              US$
                  5,931,028
              
              US$
                  14,433,548
              
              US$
                  16,176,418
              
              US$
                  7,113,880
              
              US$
                  23,290,298Fee
                  based services
              2,421,095
              
              503,242
              
              2,924,337
              
              3,672,407
              
              594,725
              
              4,267,132
              
              4,582,808
              
              802,419
              
              5,385,2276,556,320
              
              6,070,344
              
              12,626,664
              
              12,174,927
              
              6,525,753
              
              18,700,680
              
              20,759,227
              
              7,916,299
              
              28,675,525Inter
                  segment revenues:Advertising
              6,353
              
              -
              
              6,353
              
              7,029
              
              -
              
              7,029
              
              246
              
              -
              
              246**Total
                  revenues**
              6,562,673
              
              6,070,344
              
              12,633,017
              
              12,181,956
              
              6,525,753
              
              18,707,709
              
              20,759,473
              
              7,916,299
              
              28,675,771Cost
                  of revenues-Third-party
              1,593,218
              
              3,519,906
              
              5,113,124
              
              1,593,894
              
              3,445,539
              
              5,039,434
              
              2,357,178
              
              3,059,138
              
              5,416,316-Inter
                  segment
              -
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -**Total
                  cost of revenues**
              1,593,218
              
              3,519,906
              
              5,113,124
              
              1,593,894
              
              3,445,539
              
              5,039,434
              
              2,357,178
              
              3,059,138
              
              5,416,316**Segment
                  Results**
              US$
                  4,963,102
              
              US$
                  2,550,438
              
              US$
                  7,519,893
              
              US$
                  10,588,062
              
              US$
                  3,080,214
              
              US$
                  13,668,276
              
              US$
                  18,402,295
              
              US$
                  4,857,161
              
              US$
                  23,259,455**Segment
                  Assets**
              US$
                  16,270,665
              
              US$
                  9,195,006
              
              US$
                  25,465,671
              
              US$
                  64,417,947
              
              US$
                  9,563,787
              
              US$
                  73,981,735
              
              US$
                  75,768,326
              
              US$
                  11,060,461
              
              US$
                  86,828,787




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, 2005, 2006 and
      2007.





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**Segment
                Result
            US$
                7,519,893
            
            US$
                13,668,276
            
            US$
                23,259,455Inter
                segment expenses
            6,353
            
            7029
            
            246Operating
                expenses
            9,226,711
            
            12,682,967
            
            20,194,540Other
                Income
            531,285
            
            252,181
            
            3,981,359Net
                (Loss)\Income before income taxes from continuing
                operations...
            (1,181,886)
            
            1,230,460
            
            7,045,602








The
      following is a reconciliation of
      the segment assets to the total assets as at March 31, 2006 and
      2007.




F-20


**As
                  at March 31,****2006**
              
              
              **2007**India
                  online business
              
              US
                  $64,417,947
              
              
              US$75,768,326US
                  Publishing business
              
              
              9,563,787
              
              
              
              11,060,461


73,981,735
            
            
            
            86,828,787Phone
                card business
            
            
            128,539
            
            
            
            81,262Total
                assets
            
            US$74,110,273
            
            
            US$86,910,049





Revenues
      derived from customers are as
      follows:





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007**United
                States
            US$5,352,176
            
            US$5,853,947
            
            US$7,507,998India
            6,898,291
            
            12,536,571
            
            20,890,345Rest
                of the world
            376,197
            
            310,162
            
            277,182Total
                revenues
            US$12,626,664
            
            US$18,700,680
            
            US$28,675,525





Net
      property, plant and equipment by
      location are as follows:





**As
                  of March 31,****2006**
            
            
            **2007**United
                States and
                Canada
            
            US$
                205,760
            
            
            US$
                118,847India
            
            
            5,325,912
            
            
            
            9,844,182Total
            
            US$
                  5,531,672
            
            
            US$
                  9,963,029





**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 the
      majority of its cash and cash equivalents in Indian Rupees with reputed banks
      in
      India and the United States.





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 year ended March 31, 2005
      and  2006. Only one client accounted for more than 10% of total
      revenues for the year ended March 31, 2007.  As of March 31, 2006, no
      one customer accounted for 10 percent or more of the accounts receivable
      balance. As of March 31, 2007, one customer accounted for more than 10% of
      the
      accounts receivable balance.




**15.**
            **Stock-based
                compensation**




***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.




F-21




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.





For
      the years ended March 31,  2005 ,2006 and2007the Company recognized a
      compensation cost of US$448, US$262 and Nil, 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:





**Shares
                available to be granted as options****Years
                ended March 31,****Employee
                Stock Option Plan 1999:**
            **2005**
            
            **2006**
            
            **2007**Available
                to be granted, beginning of year
            33,725
            
            11,475
            
            11,475Options
                granted
            (30,000)
            
            __NIL
            
            __NILForfeited
            7,750
            
            NIL
            
            11,475Available
                to be granted, end of
                year
            11,475
            
            11,475
            
            NIL





Activity
      in the warrants of the 1999
      ESOP for the years ended March 31, 2005, 2006 and 2007 is as
      follows:





**Years
                ended March 31,****2005**
            
            **2006**
            
            **2007***Shares
                  arising out of options*
            
            Weighted
                  average price
            
            *Shares
                  arising out of options*
            
            Weighted
                  average price
            
            *Shares
                  arising out of options*
            
            Weighted
                  average priceOutstanding
                at the beginning of the year
            *246,275*
            
            *US$6.92*
            
            *Rs.
                300*
            
            *92,150*
            
            *US$6.45*
            
            *Rs.
                281*
            
            *46,000*
            
            **US$
                9.49**
            
            Rs.
                423Granted
            30,000
            
            US$10.78
            
            Rs.
                500
            
            --
            
            --
            
            --
            
            --
            
            --
            
            --Lapsed
            *(176,375)*
            
            *US$6.13*
            
            *Rs.
                267*
            
            *(46,150)*
            
            *US$
                10.43*
            
            *Rs.
                465*Forfeited
            *(7,750)*
            
            *US$8.29*
            
            *Rs.
                362*
            
            *--*
            
            *--*
            
            *--*
            
            *--*
            
            *--*
            
            *--*Outstanding
                at the end of the year
            *92,150*
            
            **US$6.45**
            
            Rs.
                281
            
            *46,000*
            
            US$
                9.49
            
            Rs.
                423
            
            *46,000*
            
            US$
                9.70
            
            Rs.
                423





Activity
      in the options available to be
      granted under the 1999 ASOP is as follows:





**Shares
                available to be granted as options****Years
                ended March 31,****Associate
                Stock Option Plan 1999:**
            **2005**
            
            **2006**
            
            **2007**Available
                to be granted, beginning of year
            109,650
            
            103,650
            
            103,650Options
                granted
            (6,000)
            
            --
            
            --Forfeited
            --
            
            --
            
            103,650Available
                to be granted, end of
                year
            103,650
            
            103,650
            
            NIL





Activity
      in the warrants of the 1999
      ASOP for the years ended March 31, 2005, 2006 and 2007 is as
      follows:






F-22




**Year
                ended March 31,****2005**
            
            **2006**
            
            **2007****Shares
                arising out**
              **of
                options**
            
            **Weighted**
              **average**
              **price**
            
            **Shares
                arising out**
              **of
                options**
            
            **Weighted**
              **average**
              **price**
            
            **Shares
                arising out**
              **of
                options**
            
            **Weighted**
              **average**
              **price**Outstanding
                at the beginning of the year
            *88,350*
            
            *US$10.27*
            
            *Rs.
                446*
            
            *35,000*
            
            *US$4.67*
            
            *Rs.
                204*
            
            *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
            *35,000*
            
            **US$4.67**
            
            **Rs.
                204**
            
            *35,000*
            
            US$4.56
            
            Rs.
                204
            
            *35,000*
            
            US$4.68
            
            Rs.
                204





***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. 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.





Activity
      in the warrants available to
      be granted under the 2002 plan is as follows:





**Shares
                available to be granted as options**
              **Years
                ended March 31,****ADS
                linked Employee Stock Option Plan 2002:**
            **2005**
            
            **2006**
            
            **2007**Available
                to be granted, beginning of year
            12,750
            
            7,125
            
            13,000Options
                granted
            (10,500)
            
            --Forfeited
            4,875
            
            5,875
            
            --Available
                to be granted, end of
                year
            7,125
            
            13,000
            
            13,000





Activity
      in the warrants of the 2002
      plan for the fiscal year ended March 31, 2004, 2005 and  2006 is as
      follows:




F-23


**Year
                  s ended March 31,****2005**
              **2006**
              **2007**


**Shares
                arising out**
              **of
                options**
            
            **Weighted
                average**
              **Price**
            **Shares
                arising out**
              **of
                options**
            
            **Weighted
                average**
              **price**
            **Shares
                arising out**
              **of
                options**
            
            **Weighted
                average**
              **price**Outstanding
                at the beginning of the year
            *235,025*
            
            US$4.64
            
            **188,025**
            
            US$5.22
            
            87,750
            
            US$5.26Granted
            *10,500*
            
            *US$10.98*
            
            **--**
            
            **--**
            
            --
            
            --Forfeited
            *(4,875)*
            
            *US$2.26*
            
            ***(5,875)***
            
            **US$*2.28***
            
            --
            
            US$--Exercised
            *(52,625)*
            
            *US$5.53*
            
            ***(94,400)***
            
            **US$*5.38***
            
            (25,125)
            
            US$6.13Outstanding
                at the end of the year
            *188,025*
            
            *US
                $5.22*
            
            **87,750**
            
            **US$5.26**
            
            62,625
            
            US$4.95





***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. 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:





**Shares
                available to be granted as options**
              **Years
                ended March 31,****ADS
                linked Employee Stock Option Plan 2004:**
            **2005**
            
            **2006**
            
            **2007**Available
                to be granted, beginning of year
            358,000
            
            73,500
            
            115,525Options
                granted
            (284,500)
            
            (5,100)
            
            (46,250)Forfeited
            -
            
            47,125
            
            11,875Available
                to be granted, end of
                year
            73,500
            
            115,525
            
            81,150


Activity
      in the warrants of the 2004 plan for the fiscal year ended March 31, 2005,
      2006
      and 2007 is as follows:




**Year
                  s ended March 31,****2005**
              **2006**
              **2007****Shares
                  arising out**
                **of
                  options**
              **Weighted
                  average**
                **Price**
              **Shares
                  arising out**
                **of
                  options**
              **Weighted
                  average**
                **price**
              **Shares
                  arising out**
                **of
                  options**
              **Weighted
                  average**
                **price**Outstanding
                  at the beginning of the year
              **-**
              -
              
              *284,500*
              US$
                  10.84
              
              190,565
              US$
                  10.74Granted
              *284,500*
              *US$10.84*
              
              *5,100*
              *US$
                  14.68*
              
              46,250
              US$
                  23.13Forfeited
              *-*
              *-*
              
              *(47,125)*
              *US$
                  10.78*
              
              (11,875)
              US$
                  13.04Exercised
              *-*
              *-*
              
              *(51,910)*
              *US$
                  10.86*
              
              (39,075)
              US$
                  10.83Outstanding
                  at the end of the year
              *284,500*
              *US$
                  10.84*
              
              *190,565*
              *US$
                  10.74*
              
              185,865
              US$
                  14.04





F-24


***2006
      Stock Option Plan***





The
      2006 Stock Option Plan (“2006 ESOP”) was adopted and approved by the
      Compensation committee on June 20, 2006 in accordance with the approval granted
      by shareholders on March 31, 2006. A total of 485,000 equity shares were
      approved for issuance under the plan.





Under
      the terms of the 2006 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 2006 plan, the Company has
      obtained necessary approvals. During the fiscal year ended March 31, 2007,
      the
      Company made appropriate filings with the SEC prior to the first exercise date
      of the options granted under the 2006 plan.





Activity
      in the warrants available to be granted under the 2006 plan is as
      follows:




**Shares
                  available to be granted as options**
                **Years
                  ended March 31,****ADS
                  linked Employee Stock Option Plan 2006:**
              **2006**
              **2007**Available
                  to be granted, beginning of year
              --
              485,000Options
                  granted
              --
              263,750Available
                  to be granted, end of year
              
              --
              
              221,250




**2006**
              
              **2007****Shares
                  arising out**
                **of
                  options**
              
              **Weighted
                  average**
                **price**
              
              **Shares
                  arising out**
                **of
                  options**
              
              **Weighted
                  average**
                **price**Outstanding
                  at the beginning of the year
              *--*
              
              US$
                  --
              
              --
              
              US$
                  --Granted
              *--*
              
              *US$***--**
              
              263,750
              
              US$
                  14.88Forfeited
              *--*
              
              *US$***--**
              
              (3,000)
              
              US$
                  0.23Outstanding
                  at the end of the year
              *--*
              
              *US$*****--**
              
              260,750
              
              US$
                  15.05





The
      following table summarizes
      information about stock options outstanding as at March 31, 2007:


**Options
                  Outstanding*****Range
                  of Exercise Price***
              
              **Number
                  of**
                **shares**
                **arising
                  out**
                **of
                  options**
              
              **Weighted**
                **average**
                **remaining**
                **contractual
                  life**
              
              **Weighted
                  average**
                **Price**US$1.72
–
2.60
              
              195,750
              
              3.91
                  years
              
              US$  1.11
              
              Rs.  48.48US$6.44
–
9.29
              
              15,500
              
              2.99
                  years
              
              US$  8.98
              
              Rs.  391.42US$9.81
–
13.58
              
              184,490
              
              0.18
                  years
              
              US$  11.43
              
              Rs.  498.25US$14.92
                  -
                  20.43
              
              194,500
              
              4.47
                  years
              
              US$  26.21
              
              Rs.  1142.42


F-25




The
        following table summarizes information about stock options exercisable as
        at
        March 31, 2007:
 **Options
                    Outstanding*****Range
                    of Exercise Price***
                
                **Number
                    of**
                  **shares**
                  **arising
                    out**
                  **of
                    options**
                
                **Weighted**
                  **average**
                  **remaining**
                  **contractual
                    life**
                
                **Weighted
                    average**
                  **Price**US$1.72
–
2.60
                
                44,000
                
                1.29
                    years
                
                US$  1.29
                
                Rs.  48.38US$6.44
–
9.29
                
                23,250
                
                2.3
                    years
                
                US$  8.98
                
                Rs.  391.42US$9.81
–
13.58
                
                63,230
                
                0.01
                    years
                
                US$  11.43
                
                Rs.  498.25US$14.92
                    -
                    20.43
                
                1,500
                
                0.06 years
                
                US$  26.22
                
                Rs.  1142.74


**16.**
            **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 year ended March 31 2005, since
      304,957 stock options outstanding as on March 31, 2005, which could potentially
      dilute the basic EPS in the future were anti dilutive in those
      years.





For
      the year ended March 31, 2006 and
      2007, the following table sets forth the computation of basic and diluted income
      per share and ADS:




**Year
                  ended March 31, 2006**
              **Year
                  ended March 31, 2007**Numerator:Net
                  Income
              US$
                  1,212,857
              US$
                  6,962,528Denominator:Weighted
                  average equity shares
              13,487,212
              14,543,360Denominator
                  for basic calculations
              13,487,212
              14,543,360Weighted
                  average effect of dilutive shares:Employee
                  Stock Options
              276,778
              380,907Denominator
                  for diluted calculations
              13,763,989
              14,924,267Earnings
                  per share
              –
                  basic
              Cents
                  8.99
              Cents
                  47.88–
                  diluted
              Cents
                  8.81
              Cents
                  46.66Earnings
                  per ADS
              –
                  basic
              Cents
                  4.50
              Cents
                  23.94–
                  diluted
              Cents
                  4.41
              Cents
                  23.33
 
  F-26





**17.**  **Commitments
      and contingencies**





***Litigation***





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 the Khanna
      Action, a class action lawsuit filed in the U.S. District Court for the Southern
      District of New York. The plaintiffs alleged 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 were all persons who purchased ADSs from the
      time of the IPO through April 14, 2001.




Several
      other class action lawsuits were subsequently filed against us and other
      defendants stating substantially the same allegations as set forth in the Khanna
      Action.




All
      the cases were 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 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 alleged 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 alleged 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 alleged 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 defined
      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.  This case was 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 incorporated 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 and referred the parties to a magistrate judge for settlement
      discussions.  The parties subsequently engaged in discovery and
      continued settlement discussions in parallel.  The settlement
      discussions resulted in an agreement by the plaintiffs to settle all claims
      against us and our officers and directors in exchange for a payment of US$2.5
      million.  Our D&O insurance policy provider agreed to fund the
      entire amount of the settlement.  The settlement agreement was
      submitted to review by the Court and by all members of the putative
      class.  No class member submitted any objection to the settlement or
      exercised a right to opt-out of the settlement.  On July 12, 2007, the
      Court entered an order giving the settlement full and final approval and
      dismissing all claims against us and our officers and directors.  As
      there have been no appeals filed within 30 days of entry of the Court’s order,
      this litigation was finally concluded on August 12, 2007.





We
      may be subject to additional lawsuits of this nature filed in the future. We
      cannot predict the outcome of these lawsuits, nor can we predict the amount
      of
      time and expense that will be required to resolve these lawsuits. If these
      lawsuits become time consuming and expensive, or if there are unfavorable
      outcomes in any of these cases, there could be a material adverse effect on
      our
      business, financial condition and results of operations. We currently hold
      insurance policies for the benefit of our directors and officers (the “D&O
      Policy”), which provide




F-27




coverage
      against certain claims. However, the amount of coverage may not be sufficient
      for our needs or the various exclusions in the D&O Policy could result in
      denial of coverage, in which case we may have to self-fund all or a substantial
      portion of our indemnification obligations.





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 IPC for distributing,
      publicly exhibiting and putting into circulation obscene, pornographic and
      objectionable material. The RCC 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).





Actions
      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. The
      application is pending hearing. 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.





A
      complaint was filed by SCIL, a producer and publisher of sound recordings and
      audio visual songs in India, against us and our Chairman/Chief Executive Officer
      as well as Ram Gopal Verma Films Private Limited in the High Court of Delhi
      (Suit No. C.S. (O.S.) 736 of 2007). The complaint alleges violations of the
      Indian Copyright Law of 1957 through our placement on our website of video
      clips
      of certain songs from two Hindi films (Nishabd and Honeymoon Travels Pvt Ltd),
      of which SCIL claims to own sole copyrights through an assignment in the audio
      visual songs, sound recordings, lyrics and musical composition. The complaint
      seeks injunctive relief, damages in the amount of Rs.2.0 million (approximately
      US$50,000) and other relief. In June 2007, we filed a written reply and
      submitted the following facts that: (i) these song clips were uploaded as an
      editorial feature due to the recent release of the two films believing these
      to
      be newsworthy, in the course of our regular activity and not for commercial
      purposes; (ii) the clips in question were not downloadable by our users; (iii)
      these clips were accompanied by editorial review as normally done for a film’s
      release; (iv) these were uploaded on our sites with the permission of the
      producer of these films or their publicists who had provided us with such clips
      for the intended use; and (v) the use of the these clips on our website was
      fair
      use, uploaded for its newsworthiness for promotional review and was
      non-commercial in nature. We have subsequently removed these clips from our
      website. The matter is now pending before the High Court of Delhi. These actions
      require management time and cost. In the event that we are unsuccessful in
      our
      defense, we and our Chairman may face penalties and fines.




F-28




Actions
      relating to Trademark Infringement





A
      complaint was filed by 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
      (approximately US$50,000). 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.





***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.





**18.**  **New
      Accounting Pronouncements**





In
      July 2006, the FASB issued Interpretation (“FIN”) No. 48, Uncertainty in Income
      Taxes. FIN 48 applies to all tax positions within the scope of Statement 109
      and
      clarifies when and how to recognize tax benefits in the financial statements
      with a two-step approach of recognition and measurement. FIN 48 is effective
      for
      fiscal years beginning after December 15, 2006. FIN 48 also requires the
      enterprise to make explicit disclosures about uncertainties in their income
      tax
      positions, including a detailed roll forward of tax benefits taken that do
      not
      qualify for financial statement recognition. Differences between the amounts
      recognized in the statements of financial position prior to the adoption of
      FIN
      48 and the amounts reported after adoption should be accounted for as a
      cumulative-effect adjustment recorded to the beginning balance of retained
      earnings. We have evaluated the impact of this pronouncement and do not believe
      that adoption of FIN 48 on April 1, 2007 will have a material effect on the
      financial position, cash flows or results of our operations.





In
      September 2006, the FASB issued SFAS No. 157 “Fair Value
      Measurements”. This Statement defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles (GAAP), and
      expands disclosures about fair value measurements. This Statement is effective
      for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. We
      are  currently evaluating the impact, if any, the adoption of
      SFAS No. 157 will have on its financial reporting and
      disclosures.




In
          February 2007, the Financial Accounting Standards Board issued
          SFAS No. 159, “The Fair Value Option for Financial Assets and
          Financial Liabilities”. SFAS No. 159 permits entities to choose to
          measure many financial instruments and certain other items at fair value.
          The
          objective is to improve financial reporting by providing entities with
          the
          opportunity to mitigate volatility in reported earnings caused by measuring
          related assets and liabilities differently without having to apply complex
          hedge
          accounting provisions. This Statement is expected to expand the use of
          fair
          value measurement, which is consistent with the Board’s long-term measurement
          objectives for accounting for financial instruments. The fair value option
          established by this Statement permits all entities to choose to measure
          eligible
          items at fair value at specified election dates. This standard is effective
          for
          fiscal years ending on or after November 15, 2007. We are currently
          evaluating the impact, if any, the adoption of SFAS No. 159 will have on
          its financial reporting and disclosures.




F-29





*Schedule
          of Valuation and Qualifying Accounts*
 
 Allowance
          for trade accounts receivables
 
 **Description**
                **Balance
                    at Beginning of Period**
                **Charged
                    to cost and expenses**
                **Write
                    offs**
                **Effect
                    of exchange rate changes**
                **Balance
                    at**
                  **end**
                  **of
                    period**Fiscal
                    2007
                US$1,766,424
                US$948,934
                US$-
                US$(18,024)
                US$2,697,334Fiscal
                    2006
                US$1,434,910
                US$401,818
                US$(45,018)
                US$(25,286)
                US$1,766,424Fiscal
                    2005
                US$1,229,677
                US$205,890
                -
                US$(607)
                US$1,434,910
   F-30




**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 LIMITEDBy:
              /s/
                  Ajit BalakrishnanName:
              Ajit
                  BalakrishnanTitle:
              Chairman
                  and Managing Director
 
 
 Place:          Mumbai
 Date:           September
        26, 2007
    
  **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 LIMITEDBy:
                      /s/
                          Joy BasuJoy
                          BasuChief
                        Financial Officer(Principal
                          Financial Officer)
 Place:          Mumbai
 Date:           September
            26, 2007





**Exhibit
      12.1**





**CERTIFICATIONS**





I,
      Ajit Balakrishnan, certify that:





1.           I
      have reviewed this annual report on Form 20-F of Rediff.com India
      Limited;





2.
            Based
                on my knowledge, this report does not contain any untrue statement
                of a
                material fact or omit to state a material fact necessary to make
                the
                statements made, in light of the circumstances under which such statements
                were made, not misleading with respect to the period covered by this
                report;





3.
            Based
                on my knowledge, the financial statements, and other financial information
                included in this report, fairly present in all material respects
                the
                financial condition, results of operations and cash flows of the
                company
                as of, and for, the periods presented in this
                report;





4.
            The
                company’s other certifying officer and I are responsible for establishing
                and maintaining disclosure controls and procedures (as defined in
                Exchange
                Act Rules 13a-15(e) and 15d-15(e)) for the company and we
                have:





(a)
            Designed
                such disclosure controls and procedures, or caused such disclosure
                controls and procedures to be designed under our supervision, to
                ensure
                that material information relating to the company, including its
                consolidated subsidiaries, is made known to us by others within those
                entities, particularly during the period in which this report is
                being
                prepared;





(b)
            Designed
                such internal control over financial reporting, or caused such internal
                control over financial reporting to be designed under our supervision,
                to
                provide reasonable assurance regarding the reliability of financial
                reporting and the preparation of financial statements for external
                purposes in accordance with generally accepted accounting
                principles;





(c)
            Evaluated
                the effectiveness of the company’s disclosure controls and procedures and
                presented in this report our conclusions about the effectiveness
                of the
                disclosure controls and procedures, as of the end of the period covered
                by
                this report based on such evaluation;
                and





(d)
            Disclosed
                in this report any change in the company’s internal control over financial
                reporting that occurred during the period covered by the annual report
                that has materially affected, or is reasonably likely to materially
                affect, the company’s internal control over financial reporting;
                and





5.
            The
                company’s other certifying officer and I have disclosed, based on our most
                recent evaluation of internal control over financial reporting, to
                the
                company’s auditors and the audit committee of the company’s Board of
                Directors (or persons performing the equivalent
                functions):





(a)
            All
                significant deficiencies and material weaknesses in the design or
                operation of internal control over financial reporting which are
                reasonably likely to adversely affect the company’s ability to record,
                process, summarize and report financial information;
                and





(b)
            Any
                fraud, whether or not material, that involves management or other
                employees who have a significant role in the company’s internal control
                over financial reporting.







Date:  September
      26, 2007


By:
              /s/
                  Ajit BalakrishnanAjit
                  BalakrishnanChairman
                and Managing Director(Principal
                  Executive Officer)









**Exhibit
      12.2**





**CERTIFICATIONS**





I,
      Joy Basu, certify that:





1.           I
      have reviewed this annual report on Form 20-F;





2.
            Based
                on my knowledge, this report does not contain any untrue statement
                of a
                material fact or omit to state a material fact necessary to make
                the
                statements made, in light of the circumstances under which such statements
                were made, not misleading with respect to the period covered by this
                report;





3.
            Based
                on my knowledge, the financial statements, and other financial information
                included in this report, fairly present in all material respects
                the
                financial condition, results of operations and cash flows of the
                company
                as of, and for, the periods presented in this
                report;





4.
            The
                company’s other certifying officer and I are responsible for establishing
                and maintaining disclosure controls and procedures (as defined in
                Exchange
                Act Rules 13a-15(e) and 15d-15(e)) for the company and we
                have:





(a)
            Designed
                such disclosure controls and procedures, or caused such disclosure
                controls and procedures to be designed under our supervision, to
                ensure
                that material information relating to the company, including its
                consolidated subsidiaries, is made known to us by others within those
                entities, particularly during the period in which this report is
                being
                prepared;





(b)
            Designed
                such internal control over financial reporting, or caused such internal
                control over financial reporting to be designed under our supervision,
                to
                provide reasonable assurance regarding the reliability of financial
                reporting and the preparation of financial statements for external
                purposes in accordance with generally accepted accounting
                principles;





(c)
            Evaluated
                the effectiveness of the company’s disclosure controls and procedures and
                presented in this report our conclusions about the effectiveness
                of the
                disclosure controls and procedures, as of the end of the period covered
                by
                this report based on such evaluation;
                and





(d)
            Disclosed
                in this report any change in the company’s internal control over financial
                reporting that occurred during the period covered by the annual report
                that has materially affected, or is reasonably likely to materially
                affect, the company’s internal control over financial reporting;
                and





5.
            The
                company’s other certifying officer and I have disclosed, based on our most
                recent evaluation of internal control over financial reporting, to
                the
                company’s auditors and the audit committee of the company’s Board of
                Directors (or persons performing the equivalent
                functions):





(a)
            All
                significant deficiencies and material weaknesses in the design or
                operation of internal control over financial reporting which are
                reasonably likely to adversely affect the company’s ability to record,
                process, summarize and report financial information;
                and





(b)
            Any
                fraud, whether or not material, that involves management or other
                employees who have a significant role in the company’s internal control
                over financial reporting.





Date:  September
      26, 2007




By:
                /s/
                    Joy BasuJoy
                    BasuChief
                  Financial Officer(Principal
                    Financial Officer)






**Exhibit
      13.1**





**CERTIFICATION
      OF PRINCIPAL EXECUTIVE OFFICER**


**PURSUANT
      TO 18 U.S.C. SECTION 1350**





In
      connection with the accompanying
      Annual Report on Form 20-F of Rediff.com India Limited for the fiscal year
      ended
      March 31, 2007 as filed with the Securities and Exchange Commission on the
      date
      hereof (the “Report”), I, Ajit Balakrishnan, the principal executive officer of
      Rediff.com India Limited, hereby certify pursuant to 18 U.S.C. §1350, as adopted
      pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
      knowledge:





(1)
            the
                Report fully complies with the requirements of Section 13(a) or 15(d) of
                the Securities Exchange Act of 1934;
                and





(2)
            the
                information contained in the Report fairly represents, in all material
                respects, the financial condition and results of operations of Rediff.com
                India Limited.





Date:  September
        26, 2007
 By:
                /s/
                    Ajit BalakrishnanAjit
                    BalakrishnanChairman
                  and Managing Director(Principal
                    Executive Officer)


A
      signed original of this written
      statement required by §906 has been provided to the Company and will be retained
      by the Company and furnished to the Securities and Exchange Commission or its
      staff upon request.











**Exhibit
      13.2**





**CERTIFICATION
      OF PRINCIPAL EXECUTIVE OFFICER**


**PURSUANT
      TO 18 U.S.C. SECTION 1350**





In
      connection with the accompanying
      Annual Report on Form 20-F of Rediff.com India Limited for the fiscal year
      ended
      March 31, 2007 as filed with the Securities and Exchange Commission on the
      date
      hereof (the “Report”), I, Joy Basu, Chief Financial Officer of Rediff.com India
      Limited, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906
      of the Sarbanes-Oxley Act of 2002, that, to the best of my
      knowledge:





(1)
            the
                Report fully complies with the requirements of Section 13(a) or 15(d)
                of
                the Securities Exchange Act of 1934;
                and





(2)
            the
                information contained in the Report fairly represents, in all material
                respects, the financial condition and results of operations of Rediff.com
                India Limited.








Date:  September
          26, 2007
 By:
                    /s/
                        Joy BasuJoy
                        BasuChief
                      Financial Officer(Principal
                        Financial Officer)




A
      signed original of this written
      statement required by §906 has been provided to the Company and will be retained
      by the Company and furnished to the Securities and Exchange Commission or its
      staff upon request.