It was, perhaps, the ultimate cover for an aspiring racketeer in the Indian capital. In the early 1980s Ashok Malhotra began delivering masala tea and snacks to the Delhi Assembly in his three-wheeled Bajaj van.

So tasty was his chhole — a popular chickpea snack — that it earned him influential patrons and, in 1986, a contract to run the canteen inside the city legislature. But 21 years on, Mr Malhotra has been exposed as someone potentially far more powerful — and sinister — than a humble chhole-wallah.

Police arrested him yesterday on suspicion of running a multimillion-pound scam to cheat slum dwellers out of their land in cahoots with dozens of city officials.

Earlier raids revealed that he owned three houses and seventeen luxury cars with VIP number plates, according to the Central Bureau of Investigation, the Indian equivalent of the FBI. The CBI has also charged five city government officials, prompting calls for the removal of Sheila Dikshit, the veteran Chief Minister of Delhi and a leading member of the Congress party.

“The investigation is in a very initial stage. No one will be spared,” Vijay Shankar, the director of the CBI, said. “Anybody of any stature found to have played a role will not be spared. All that’s possible is being done to unravel the scam.”

The case is the latest in a string of scandals to have exposed the corruption at the heart of Indian politics, which revolves as much around bribes and backhanders as it does around issues.

Mr Malhotra, 52, first found favour with city politicians by using his van — a rare possession for a street vendor in the 1980s — to distribute their posters and pamphlets during elections. After winning the canteen contract he used his new political friends to build contacts within the Delhi city government.

Those contacts paid off in 2000 when the Delhi government decided to relocate 5,500 families from slums near the city centre. The plan was to allocate each family 20.9 sq m of land on the edge of the city.

Instead, at least 5,000 of the plots were allocated, it is claimed, through multiple false identities, to Mr Malhotra, who is said to have sold them on at market rates.

The CBI said it was still calculating Mr Malhotra’s alleged ill-gotten gains but they were estimated at anywhere between £1 million and £10 million.

He used much of his new-found wealth to indulge a passion for cars, including Mercedes and Toyota Landcruisers, and to bribe officials to allocate him VIP number plates, according to the CBI. He then lent the cars to his politician and bureaucrat friends.

When CBI agents raided his houses, as well as the cars, they found ten motorbikes, 1.7 million rupees (£20,000) in cash and 7kg (15lb 7oz) of gold. They also found the Bajaj three-wheeler that launched his career.

Mr Malhotra, who had been in hiding for five days, was arrested at the studios of Zee TV after giving a brief interview to the channel.

He said that he had gone into hiding because he feared for his life. “I have no political connections and have been wrongly framed in the scam,” he said. “There is a big political conspiracy going on in the state and I have been made a scapegoat.”

The affair reflects a bitter struggle for the leadership of Delhi, which Mrs Dikshit has run since 1998, amid mounting dissatisfaction with its decrepit infrastructure and public services. “A lot of shady deals are taking place in Delhi and there are a lot of brokers who help them to happen,” K. G. Suresh, a political analyst, said. “There is a tussle for the leadership of Delhi,”

Some Delhi politicians are now accusing a Congress faction of plotting to use Mr Malhotra’s funds to oust Mrs Dikshit.

Others say that Mr Malhotra was working in league with senior Congress figures.

“This scandalist is totally involved with the Congress Government,” said Karan Singh Tanwar, an assembly member from the Hindu nationalist Bharatiya Janata Party.

“Sheila Dikshit is totally responsible for this. That is why we have asked the President to remove her from office.”

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