Bribery sting destroys Indian financiers

The targeting of an investigative website and its backers shows the limits of press freedom in the subcontinent

It was, says Shankar Sharma, a "piffling" investment by the standards of First Global, a thrusting Asian brokerage and investment banking company with offices in every major Indian city and branches in London and New York.

A mere $750,000 (£450,000), paid out speculatively to a swashbuckling media company seeking to realise its ambition of setting up an investigative website run by journalists, called Tehelka – from a word which means making a commotion.

For that, Mr Sharma got 14.5 per cent of Buffalo Networks, Tehelka's one-year-old parent. He was wholly unaware that he had also bought himself a walk-on part in a national scandal that would threaten to engulf his business.

Before the deal, First Global had 23 offices in India, a $5bn turnover, and some 5 per cent market share of the Indian Stock Exchange. It employed more than 300 people. Mr Sharma, 39, and his wife and founding partner Devina Mehra say they were among the country's top taxpayers. Most of that has now gone. The network of offices in India has closed, shrivelling to just one in Bombay. His premises have been raided by the authorities more than 25 times, and Mr Sharma has been served more than 200 summonses for a variety of alleged violations, all of which he denies.

The healthy turnover, and its tidy profit margin, have evaporated. Eighty-five per cent of the staff have been laid off. First Global has been banned from conducting any further business in the Indian capital markets.

The bombshell that changed everything came in March 2001, when Tehelka.com came up with a blistering exclusive – an undercover sting in which its reporters, posing as representatives of a fictitious arms company, called West End International (head office: Regent Street, London) – secretly filmed senior government officials accepting bribes over a sale.

The resulting furore – much to the discomfort of the Indian government – generated headlines around the world. A few official heads rolled, including that of the Defence Minister, George Fernandes, who resigned but has since returned. The government, led by Atal Bihari Vajpayee, sombrely announced a commission of inquiry.

But – according both to First Global and Tehelka.com – the main thrust of the official effort in the 19 months since the revelations has been spent not against those who were caught red-handed, or against India's endemic corruption, but in waging a vendetta against Tehelka.com and First Global, the kind of businesses which are supposed to be encouraged as the vanguard of a modernising nation.

The demise of Tehelka.com has been even more precipitous than that of its bankers. More than 100 jobs have gone since its scoop – the entire staff. Computers and files are stacked up in a back room, gathering dust in its mostly closed offices, used now only by a handful of volunteers whose time is spent working on legal matters.

"We are living totally on debts," says Tarun Tejpal, a founder of Tehelka whom BusinessWeek declared one of the 50 leaders at the forefront of change in Asia in 2001. "Every kind of mud has been thrown at us. Investors are backing off, for fear of government retribution. They know how to harass people."

Both Mr Sharma – who says he knew nothing of Tehelka's revelations until the day they were published – and Mr Tejpal see the experience as an embittering insight into the true condition of India. The press is broadly free, but the affair established the limits to these liberties.

"It's been a huge journey of discovery for me," said Mr Sharma. "I grew up in India and believed we had democracy and rule of law, and that the judiciary would intervene, if any civilian was wronged. I now know that is all eyewash. Capitalism isn't flourishing here because there is no rule of law."

The evidence that the government has the remnants of Tehelka in its crosshairs is beyond doubt. The commission of inquiry was given an unusual mandate which includes investigating the methods used by its journalists to get their story – a clear case of blaming the messenger.

The inquiry has yet to rule, but is already looking tainted. On Friday, opposition members of the Indian parliament's upper house walked out. Their grievance? The appointment of the inquiry's chairman, Justice K Venkataswami, to a government job even before he has completed the Tehelka probe.