The incident occurred when police detained one K Nageshwara Rao who had come to Samarlkota railway station to exchange old notes with new bills.
On the inputs given by him, the police arrested Satyanarayana Reddy from his house and later E Sunil and P Ramesh.
Police seized the fake notes of Rs 500 and Rs 2000 denominations, a colour printer, and other material from Reddy's house.