Anand Joshi, an under-secretary in the Ministry of Home Affairs, was arrested by the CBI on Sunday and is being questioned about allegations of graft in the cases of NGOs accepting foreign donations.
Joshi had been summoned to appear before the agency for questioning earlier this week, but went missing after leaving a note in which he claimed he was facing "mental harassment".
According to the CBI, he had sent arbitrary notices to NGOs registered under the Foreign Contribution Regulation Act (FCRA), and demanded bribes. The money he received "was laundered by him through immovable assets and private companies that are controlled indirectly", said a CBI source.
The CBI was asked to investigate after files relating to alleged FCRA violations by two NGOs run by Teesta Setalvad went missing, according to the Hindustan Times.
The CBI searched Joshi's home and office and found Rs 7.5 lakh in cash as well as important files from the home ministry and ministry of information and broadcasting where Joshi had earlier worked.