Officials said that the arrest was made based on the findings of the Special Investigation Team (SIT) appointed by the Bombay High Court to probe into the case of the alleged fake encounter of gangster Lakhan Bhaiya.
A petition was filed by Lakhan's brother advocate Ram Prakash Gupta in the Bombay High court alleging that the police team headed by Sharma had killed Lakhan in cold-blood.
Acting on the petition the court ordered a probe by the SIT headed by Assistant Commissioner of Police M M Prasanna.
Two civilians have also been arrested in connection with the case.
They will be produced in the court on Friday, Jan 8.