Acting on a complaint filed by a contractor, the accused, Afzal Lakhani, was arrested yesterday near Kandivali railway station in northern suburb of the city, they said.
The accused had allegedly asked the contractor to pay Rs 15,000 and threatened him with dire consequences if he failed to do so, a police official said.
Lakhani told the complainant he knew that the latter had paid money to the civic body to get a contract. He then allegedly asked the contractor to give him Rs 15,000 or else he would ensure that his work is stopped, police said.
"We laid a trap yesterday and arrested the accused when he was accepting the money," the police official said.
Lakhani had also allegedly taken money in a similar manner from various other people, police said.
He has been booked under IPC sections 384 (extortion) and 506 (criminal intimidation), they said adding that the matter was being probed further.