Intelligence agencies suspect the Karmapa Lama is allegedly operating as an agent for China in Himachal Pradesh and trying to set up China-friendly Tibetan institutions all along the Himalayan region.
The Karmapa Lama, who is 25 years old, escaped from China to India ten years ago.
Indian officials now suspect that escape was staged and claim he was under Chinese tutelage between 1990 and 1999 in Beijing.
A huge amount of foreign currency was seized during raids at a transit home of the Karmapa Lama near Dharamsala earlier this week. The police recovered Rs 60 million in various currencies including Chinese yuan, Japanese yen, and Singapore dollars, Australia dollars and US dollars.
A close aide of the Karmapa Lama, Rabjaychojan alias Shakti Lama, was arrested and interrogated about the source of the money. Rs 400,000 in Indian currency was also seized.
Indian intelligence agencies believe the Karmapa was planning to use this money to buy a five-acre plot in Kangra to set up a new monastery that would be China-friendly,
Officials say this was the Karmapa's third attempt to buy land in Kangra. Earlier attempts in 2007 and 2008 were stalled after the Reserve Bank of India and the Enforcement Directorate got involved in studying the source of funds.
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