In the past few months, the diamond bourse in Mumbai and several dealers of the stone installed a small, black machine in their offices.

The little device, which can be mistaken for a laser printer linked to a computer, is an automated melee screening tool that separates the natural rough diamonds from the much cheaper synthetic stones. For insiders and those tracking the secretive world of diamonds, the timing was interesting and unmistakable.

It was happening at a point when the Winsome group, India's largest bank defaulter (with loan outstanding bigger than Kingfisher's), has emerged as the world's largest maker of synthetic diamonds. While in India banks have directed forensic audit on Winsome and government agencies are probing the money trail following the Rs 6,500 crore credit default, Winsome has consolidated its position as a leading player in man-made diamonds by operating from its bases in Singapore, Malaysia and the US.

Selling man-made diamonds, which are almost 30-40% cheaper than the natural ones, is a legitimate business. But what is worrying the trade in Mumbai and Surat is the undisclosed mixing of the two varieties of stones, the failure of dealers to segregate the synthetic ones which have almost all the physical characteristics of natural diamond, the presence of unscrupulous elements, and the bad name it can bring to a business that's based on trust.

"We are not against the marketing of synthetic diamonds. But manmade stones should be disclosed upfront, there should be proper certification and clear branding... It's absolutely essential that the two types of stones have differential import tariffs. We have tried to explain it to the government," said Vipul Shah, who heads the Gems & Jewellery Export Promotion Council.

Earlier, synthetic diamonds had a higher duty, but this was changed a few years ago. Nine out of 10 stones are cut and polished in India, but most of the bigger, valuable stones are polished in Belgium. Even though synthetic diamonds have a tiny market share of only half a percent of the total diamond business, it's a growing market.

Shah said that the council and trade members had received from market intelligence and unconfirmed reports that the import of synthetic diamond was on the rise. There were even a few complaints of undisclosed mixing of natural and synthetic stones. A year ago, the council had engaged consultant AT Kearney and Bonas, a leading diamond broker, to study the impact of synthetic diamond. It's believed that the professional agencies have indicated the future potential of the synthetic diamond market and its possible impact in their report.

Diamond houses have been alerted, most sightholders --the preferred customer of the leading global supplier Diamond Trading Company -- have installed screening devices, and representations have been made before the government to introduce differential duty structure to curb abuse. But even as they put in checks and balances, trade members are keeping a close watch on the Winsome group which once had a run-in with American authorities over synthetic diamond business carried out by an US company where the group had interest.

Promoted by Jatin Mehta (whose family is related to the Adanis by marriage), Winsome had failed to repay banks that issued standby letter of credit to enable the company to import gold. Winsome had said that it was unable to repay because its overseas clients were not in a position to pay back. Over the weekend, diamond houses subscribing to www.moneylaundering.com, the newsletter released by ACAMS (an association of finance professionals), were exchanging among themselves a report that said (quoting a document): "When Winsome defaulted on the loans, subsequent forensic investigations by Kroll Advisory Solutions concluded that most of the buyers appeared to have no secure way to store the gold, many of the businesses had been incorporated on the same day and Haytham Obidah, the business associate of Mehta, wholly owned or controlled all of the firms..." Winsome has not taken kindly to some of the bad press. Seeking a billion dollar damages, Winsome has recently sued the Israeli diamond analyst Chaim Even-Zohar, a widely followed name in the trade, over an editorial published in Diamond Intelligence Briefs. The outcome will be closely tracked in the world of diamonds.