"He has been arrested in Dubai today," said an official of the Central Bureau of Investigation (CBI), at whose instance the Interpol alert was issued.
Chaudhary is accused of investing Koda's dubious funds.
Chaudhari used his contacts in the alleged siphoning of public money and helped Koda in investing the illegally earned money.
Other charges against Koda, Chaudhary and their associates include cheating, amassing assets beyond their known sources of income and misusing their official positions.
The cases have been lodged under different sections of the Prevention of Corruption Act.
Madhu Koda has been in jail since November 2009 in a Rs.4,000 crore money laundering scam.
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