At 3 a.m. Wednesday, a squad of soldiers and police knocked on Naseem Saigol's door in an elegant, leafy district of Lahore. They had a piece of paper with the 52-year-old industrialist's name on it and orders to take him into custody.

"They were polite and well-behaved, but they insisted he go with them," said a close female relative, who asked not to be named. "They didn't have a warrant, but then nothing is legal in Pakistan now," she said bitterly. "Naseem is a well-respected man. This is a huge mistake, and it's going to boomerang."

Saigol, a member of one of Pakistan's leading business families, now sits in a Lahore military jail, prohibited from seeing his relatives or lawyers. He is one of 26 prominent people arrested across Pakistan since Wednesday in a high-profile crackdown by the country's new military regime against alleged bank loan defaulters, tax evaders and corrupt politicians.

The government, which also named former prime ministers Nawaz Sharif and Benazir Bhutto as well as numerous other politicians in such charges, says it plans to prosecute them in special courts under a new financial accountability law. If found guilty, they could face 14 years in prison and be barred from holding public office for 21 years.

Military authorities are still searching for a dozen others, but some apparently have fled the country. Sharif, who was ousted by the army Oct. 12, is already in custody. Officials charge that he owes more than $90 million in loans and taxes. Bhutto, who lives abroad, was convicted of corruption last year.

In Saigol's case, the government charges that Kohinoor Industries, a textile-based enterprise he co-owned, defaulted on $9.6 million in loans from Pakistan banks. His uncle, Asif Saigol, was also arrested on grounds that a separate family business, Mohib Textile Mills, defaulted on $50 million in loans.

Naseem Saigol's relatives and associates said they did not know the details of the Mohib Mills case, but they insisted that he committed no crime and should not have been arrested. They said that while his firm did build up excessive debt because of rapid business expansion, it had worked out a repayment plan with the banks before the government-imposed Nov. 16 deadline.

"We think they wanted to pick up a few big household names to satisfy the public thirst for blood," said a close business colleague. "We all had a lot of hopes for the army when they came in. I agree things in Pakistan need to be cleaned up. But you don't have to use terror tactics and traumatize people in the middle of the night."

Public reaction to this week's arrests has been overwhelmingly supportive, with many people cheering Gen. Pervez Musharraf, the new military ruler, for pursuing financial abusers across the political spectrum. Shortly after seizing power, he pledged to purge the country of corruption that had drained the deeply impoverished nation of billions of dollars.

The crackdown also has alarmed the business community. Officials said today they do not plan to make any new arrests soon, even though they have issued a list of more than 300 major loan defaulters and recovered only a fraction of the overdue money.

"We are pretty satisfied with the first phase, and we don't want to create any more scares," said Enayet Niazi, a retired general who is deputy chairman of the new National Accountability Bureau. The government said that in the month it gave defaulters to pay up or face prosecution, it recovered $115 million of about $4 billion owed to five major Pakistani banks.

Officials also have said that in sorting out which default cases to prosecute under the new law, they plan to distinguish between "willful" defaults, in which the borrower never intended to pay, and "circumstantial" defaults, in which debts were not repaid because of business losses or other extenuating problems.

The case of Naseem Saigol, his relatives and partners asserted in a lengthy interview today, falls into the second category. They described Kohinoor as a thriving business that had expanded rapidly in the early 1990s, only to encounter cash problems when the economy began collapsing and cotton prices fell.

Borrowing heavily to support their faltering ventures, they said, they were caught in a vicious spiral of debt. They attempted to sell off some assets, including a bank and a power plant, but were hindered by red tape and government policy changes, they said. As the Nov. 16 deadline loomed, they met with their creditors and finally reached an agreement--on Nov. 14.

Thus, Naseem Saigol's arrest surprised not only his relatives but also his bankers. At the family's request Wednesday, officials from six banks sent a letter to the finance minister stating that all of Kohinoor's defaults had been "duly settled." Saigol's younger brother Azam also wrote a letter to Musharraf, appealing for his immediate release.

"Our family has been in business since the creation of Pakistan, and we have always honored our financial commitments," Azam Saigol said tonight, sounding drained and subdued. "We have only been in trouble for the past two years, when the whole country was in a recession. We intend to return to the family tradition that every penny we owe will eventually be paid back."

Special correspondent Kamran Khan in Karachi, Pakistan, contributed to this report.