Sheikh has been absconding since the serial blasts in the city on July 26, 2008, when 57 persons lost their lives and over 200 hundred were injured.
He was arrested by the Madhya Pradesh ATS along with seven other IM and SIMI members today.
According to the city crime branch investigating the 2008 serial blasts case, Sheikh was allegedly involved in planting the bombs in different parts of the city.
He was present during meetings of SIMI members that was held prior to the blasts and used to train youth in ''jihadi'' activities and also attended terror training camps held in forests of Wagahmon in Kerala, and Halol in Gujarat.
He was a small time businessmen who polished stones used in imitation jewellery to earn a living, an official said.
According to the chargesheet filed by the police in the case, Riyaz Bhatkal and his brother Iqbal on the directions of Amir Raza Khan, who is presently based in Pakistan, were responsible for serial blasts in the city.
Amir Raza Khan, an alleged member of terror outfit HuJI, belongs to Kolkata and is at present living in Karachi, while Riyaz Bhatkal is alleged to be founder member of Indian Mujahideen (IM).
Bhatkal brothers had connived with SIMI leaders to hatch the conspiracy of serial blasts in the city and trained local people, the charge sheet had said.
The case is in trial court and charges have been framed against 62 accused. However, further proceeding were halted following a stay order by the Supreme Court last year.