Malappuram: The Kerala police on Saturday caught a currency exchange racket Tirur area of teh district and seized Rs 39.98 lakh in Rs 2,000 denomination notes.
The police also arrested a man who is already facing a hawala case against him.
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The police recovered Rs 3 lakh from 63-year-old Shoukath Ali at the bus stand in Tirur, while Rs 36.98 lakh in Rs 2,000 notes was seized from the house of a businessman, identified as Shabir Babu, said a police official.
The police also stated that Ali was arrested on Friday and was produced before a magistrate's court where he remanded to judicial custody for Saturday.
Police is still looking for the businessman who allegedly had given Rs 3 lakh to Ali to exchange scrapped Rs 500 and Rs 1,000 notes.
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The businessman had also distributed new currency notes to nine others in exchange for scrapped notes, the police said.
Six months earlier, Ali was arrested on charges of hawala transactions and was out on bail, added police.