While the police raid was underway, two of Lalwani's associates -- Salim Yakub Kara, a Pakistani national, and Gulam Khimnanai -- tried to escape but were caught in the act. The son of a Jamnagar businessman, who had come to pick up Rs 10 lakh in counterfeit notes, was also apprehended. Police refuse to divulge his name saying it could compromise their investigation.

Additional Commissioner of Police (North-West region) Rakesh Maria told Express Newsline that the quartet has confessed that the currency was supplied by ISI operatives and had been printed in the North West Province of Punjab in Pakistan.

They said underworld don Dawood Ibrahim's henchmen were also involved andhad managed to push the fake notes through their network in Dubai, Singapore and Bangkok. Notes were also routed from Karachi to Kathmandu in Nepal. Also, part of the consignment was smuggled into the country by sea via Kutch and Jamnagar in Gujarat.

Kara told investigators he himself had flown into Kathmandu with fake Indian currency worth Rs 67 lakh on May 17. Earlier, he had smuggled Rs 40 lakh into the country three months ago.

Kara is also the main accused in another counterfiet currency case registered by the Jamnagar Customs. He is believed to have smuggled Rs 27 lakh in fake Indian currency last year. He has named some of his associates as Aftab Bhatti, Asfhaq and Javad alias Bobby all based in Dubai and believed to be members of the Dawood Ibrahim gang. Ahmed Hussain Khan alias Mama Bhai has been operating a business from Mumbai.

Explaining the modus operandi, police say most of the fake notes are circulated through beer bars where they are spent on dancers and tips. On an averange, the ganghas visited six to seven bars to exchange the notes. The counterfeit is also circulated via hotels on the national highways. Some of it is also spent in some shops in the city's slums.