SIT chief S S Puri summoned him to the Maharashtra State Housing Police Corporation at Worli and placed him under arrest.
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Vagal was heading the Mumbai Crime Branch when main accused Abdul Karim Telgi was arrested in connection with the fake stamp paper case. He is accused of taking a lenient view of Telgi.
When Telgi was in the CB's custody in January 2003, instead of being behind bars, he was found in his residence in Cuffe Parade in south Mumbai along with some CB officials.
Vagal, a senior official of the Maharashtra police, was questioned by the SIT on November 5 and 6 in connection with the scam. He was reportedly asked about the developments that took place in the Mumbai Crime Branch when prime accused Abdul Karim Telgi was in police custody.
Earlier, police sources said, the SIT had sent a questionnaire to Vagal and sought clarification on certain issues. He was summoned for questioning, as the SIT was not happy with his replies.
Wagal has been charged under MCOCA. Police will take him to Pune and produce him before a magistrate seeking his remand.
Vagal is the 58th accused to be arrested in this case, SIT sources said. The SIT had earlier arrested Assistant Police Inspector Dilip Kamath who was investigating the fake stamp paper case for the Crime Branch.
The SIT is headed by retired additional director general of police S S Puri. He is assisted by Deputy Inspector General of Police Subhodh Jaiswal.