The internet auction site eBay said today that the head of its India subsidiary has been released on bail after being arrested during a pornography investigation on Friday.

Avnish Bajaj, the country manager of Baazee.com, had been taken into custody by New Delhi police, who previously told the company he would be held without bail until Christmas Eve.

"We are extremely pleased that Mr. Bajaj... has been released from custody on bail and we applaud the Indian justice system for making this decision quickly," eBay said in a statement.

According to the India Times, EBay exerted "tremendous diplomatic pressure" on the authorities for the release of Bajaj -- an India-born American.

The chain of events that led to the businessman's arrest began two months ago, it emerged last night, with a lucrative prank by a teenage boy in Delhi. When his girlfriend broke up with him, the teenager retaliated by selling friends a mobile phone video clip of the pair in a compromising situation.

But the supposed joke turned sour this week when the images were discovered for sale on the web, and this week both the boy and Mr Bajaj were arrested.

The scandal has caused a sensation in a conservative nation where sexuality is a taboo subject, not least because the teenagers were students at Delhi Public School, one of the nation’s most prestigious educational institutions.

When the couple parted, the boy began selling the video clip to his friends for 100 rupees (£1.15), sending it by mobile phone and e-mail. But then distribution spiralled and the clip was passed on around Delhi and to the rest of the country. When the school authorities discovered what had happened, they expelled the pair and banned mobile phones from the campus.

A recipient of the clip, allegedly an engineering student from a technological college, posted it on Baazee.com, India’s largest online auction house, which is owned by eBay, the American web giant. When Baazee became aware of it, it pulled the video from the site, but police were on the trail.

On Saturday, police arrested Mr Bajaj, an American citizen who is the site’s manager, remanding him in custody for two weeks in the notorious Tihar jail. The boy, who has not been named, was arrested on Sunday night as he arrived at Delhi airport with his mother after a trip to Nepal.

Both were held under the Indian Information Technology Act, which bans the transmission and sale of pornographic material. The boy appeared in juvenile court yesterday and was remanded in custody for another day.

"(The boy’s) arrest is key in this case of pornographic images being transmitted to many places. He started the process of such images being transmitted," said Kamal Kant Vyas, the additional deputy commissioner of police.

The scandal has shocked parents in a country where most frown on dating and mothers encourage daughters to conceal any previous relationships, however innocent, when meeting with prospective husbands.

The students involved came from affluent families, the boy’s father being a prominent businessman and the girl’s father a senior military officer. A survey of Delhi teenagers after the scandal suggested that at least 10 per cent had had sex with a schoolmate, shocking teachers and parents.

Several schools have since banned mobile phones. But little has been able to stop the proliferation of the clip. "Half of Delhi has seen the message and the other half is watching it on video," one resident said.

But the arrests caused a different type of stir abroad. Richard Boucher, the US State Department spokesman, told a press conference in Washington yesterday that the "situation is one of concern at the highest levels of the US government" and that Colin Powell, the Secretary of State, was following the matter closely.

eBay protested that the ad was removed from the Indian website in late November when it was discovered, and had violated company policies and user agreements. With eBay assistance, the seller was found and arrested.

Mr Bajaj had been voluntarily helping in the probe of a Baazee.com customer who advertised a pornographic video for sale, which was not shown on the auction site, the company said.

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