Nick Clegg used an official government mansion to host the family charity of Sudhir and Bhanu Choudhrie, the Liberal Democrat donors who were arrested this week in connection with allegations of bribery, the Guardian can reveal.

Official records show Clegg and his wife Miriam González Durántez hosted an event for Path To Success at Lancaster House, a mansion belonging to the government estate, in 2011.

Bhanu is listed as a board director of the children's charity, which was founded by Sudhir's wife, Anita.

Sudhir and his son Bhanu were arrested on Wednesday as part of the Serious Fraud Office's investigation into alleged bribery in Indonesia and China by Rolls-Royce, the world's second-largest engine maker.

As well as donating more than £500,000 to the party through family firms, the Choudhries have developed many links with Clegg, González Durántez, and other senior Lib Dems, and socialised with them on a number of occasions.

Around 200 people, including senior Lib Dems, attended the awards ceremony for Path To Success, of which González Durántez and the Labour home affairs select committee chair Keith Vaz are patrons.

In November, Clegg was also guest of honour at the GG2 awards to honour successful British Asians, which was sponsored by Shanti Hospitality, where Bhanu Choudhrie is a director.

Both Choudhries have denied any wrongdoing and are co-operating with the SFO's inquiries. They were granted bail without conditions after being questioned for several hours.

One senior Lib Dem has also received a large donation from Sudhir Choudhrie, who is known as "Bunny" among his friends. Justice minister Simon Hughes received a £60,000 donation in November after a request for the cash, according to the businessman's spokesman.

Choudhrie was reportedly considered for a peerage last year by the Lib Dems, but was passed over amid concerns about criticism of his family's care home business by the official watchdog.

Senior Lib Dem sources said the party had only found out about the arrest of the Choudhries from newspaper reports.

It is understood Clegg has met Choudhrie many times as he has been a major donor for a decade, but they could not be described as personal friends. "The Choudrie family are long-term party supporters and donors. Sudhir Choudhrie has met Nick Clegg and other senior party figures on a number of occasions," one aide said.

Choudhrie is believed to have moved to Britain from India in 2002 with his wife and lives in a £5m apartment in Chelsea. At the time of the move, he was accused of receiving millions of pounds in kickbacks from an arms deal with Israel [see footnote]. He was subsequently cleared of all the allegations against him.

Choudrie first personally donated £50,000 to the Lib Dems in August 2006 and has followed this up with payments of £25,000 and £20,000.

Two companies controlled by Choudhrie's son Bhanu and his nephew Dhruv – Alpha Healthcare and C&C Business Solutions – have made the bulk of the other donations to the party. Sudhir Choudhrie no longer holds positions as a director of these companies, but is acknowledged as the head of the family.

The Choudhries' company C&C Alpha runs care homes and private mental health hospitals, which receive state funds. Some of these homes have faced intense criticism from the Care Quality Commission.

Inspectors posted a damning inspection report of one of the hospitals last year, and all three of Alpha's mental health hospitals failed some standards, according to the CQC.

Labour has long had designs on Hughes' Bermondsey and Southwark seat, but he has managed to maintain a strong majority, partly through assiduous local campaigning. Bhanu's wife Simrin Choudhrie claims on her LinkedIn page that she worked as campaign assistant in Hughes' office – first of all during his mayoral campaign in 2004 and then "later assisted Simon with the bid for London to host the Olympics in 2012".

A spokesman for Hughes said he had no knowledge of any nomination for a peerage and said that the money was declared properly in line with parliamentary rules.

A spokesman for the Choudhrie family declined to discuss any nomination for a peerage but confirmed that Simrin had worked for Hughes' office and had campaigned for the Lib Dems. He said that Sudhir Choudhrie had retired and no longer had anything to do with the running of C&C Alpha or the hospitals.

The spokesman added that Bhanu Choudhrie had taken criticisms from the CQC seriously and had worked to rectify any problems identified.

The arrests of the Choudhries in connection with bribery allegations is particularly embarrassing for the Lib Dems because it comes after their major donor Michael Brown was sentenced to seven years in jail for theft, furnishing false information and perverting the course of justice. After nearly four years on the run, Brown, who gave the party £2.4m in 2005, was sent to prison in 2012. The party has not paid the money back.

• This footnote was further amended on 9 July 2014. Since publication, a spokesman for Mr Sudhir Choudhrie has pointed out that Mr Choudhrie was not personally named as a suspect in relation to the CBI investigation into the purchase of Barak missiles. The CBI investigation into Soltam began in 2004. There is no evidence to suggest that Mr Choudhrie's peerage was blocked because of the 2013 Care Quality Commission report into a hospital owned by C&C Alpha Group.