"We have arrested Samuel Amolik in connection with the case," Navi Mumbai Police Commissioner A K Sharma said on Sunday.
Samuel, an 'encounter specialist' in Mumbai who retired from the police force three years back, was allegedly in touch with the shooters, a police source said.
He was earlier suspended for his alleged links with the underworld, but later on was reinstated in the force, the source said.
Sunil Kumar Loharia, 50, had sustained five bullet injuries and stab wounds yesterday when he stepped out of his car in front of his office in Vashi area of Navi Mumbai. He later died at a hospital.
The two motorcycle borne assailants had approached Loharia when he was walking towards his office. While one of them shot him at point-blank range, the pillion rider attacked the builder with a chopper.
While one of the attackers escaped, another assailant -- identified as 35-year-old Venkatesh Shettiar -- was caught by locals and Loharia's staff. He was handed to police later.
The motive of the killing was suspected to be business rivalry, police said, adding that further investigation in the case was on.