Vijay Mallya, the multimillionaire co-owner of the Force India Formula One team, has been arrested in London on behalf of Indian authorities investigating allegations of fraud in connection with the collapse of Kingfisher Airlines.

Scotland Yard said Mallya, who fled to the UK from India to avoid arrest in relation to £1bn of unpaid debts, was arrested on an extradition warrant on Tuesday. Mallya was “arrested on behalf of the Indian authorities in relation to accusations of fraud”, the police said.

Mallya appeared before Westminster magistrates court and was bailed on a £650,000 bond to return for an extradition hearing on 17 May. The 61-year-old businessman, who has referred to himself as the “King of Good Times”, is living in a £11.5m Hertfordshire mansion once owned by the father of F1 driver Lewis Hamilton.

On Twitter Mallya, who has been seen in a chauffeur-driven Silver Maybach bearing the number plate with his initials VJM-1, dismissed excitement surrounding his arrest as “media hype” and said the court appearance was “expected” before an extradition hearing. He denies the fraud allegations.

Usual Indian media hype. Extradition hearing in Court started today as expected. — Vijay Mallya (@TheVijayMallya) April 18, 2017

India’s prime minister, Narendra Modi, has made it a priority to bring Mallya, who made most of his fortune from Kingfisher beer and spirits, back to the country to stand trial over an estimated 94bn rupees (£1bn) of debt owed to state-owned banks after the collapse of Kingfisher Airlines in 2012.

Modi’s government has described Mallya – who used to travel the globe on a private jet with VJM painted in gold on the engines and wingtips – as a “fugitive from justice”.

AFter the arrest on Tuesday, Indian finance minister, Santosh Gangwar, said: “Vijay Mallya will be brought back to India. Due process of law will be followed.”

The Indian authorities say that Mallya fled to the UK in March 2016 in order to avoid arrest over alleged fraud surrounding the collapse of the airline. The Indian government revoked his passport last April, and the Indian Central Bureau of Investigation filed formal fraud charges against him.

Indian investigators said last year Mallya had ignored their summons to give evidence three times. Mallya has denied that he fled to the UK, and said he travelled frequently to the UK on business.

Mallya, who had previously been likened to Sir Richard Branson for his entrepreneurial flair, became a poster boy for greed in India when he held a lavish two-day 60th birthday party at his huge beachfront Kingfisher Villa in Goa. The party, which reportedly cost more than $2m (£1.56m), included performances by Bollywood singer Sonu Nigam and Enrique Iglesias, who sang on stage with Mallya.

Raghuram Rajan, who was then governor of India’s central bank, said: “If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don’t care.”

Mallya was known internationally for his extravagant parties, which included annual parties on his 311ft superyacht Indian Empress during the Monte Carlo grand prix. Since his self-imposed exile in the UK Mallya has said tales of his high-rolling lifestyle are “bollocks”. “It’s nonsense – a figment of everybody’s imagination. I am a very private, simple guy,” he told the FT during an interview at the Dorchester hotel last year.

More than 4,000 Kingfisher Airlines employees went without pay for seven months before they revolted and grounded the carrier in October 2012.

The Kingfisher Villa was sold off by Mallya’s creditors for nearly £9m this year and the Airbus private jet, which boasts gold ashtrays and a golden sink, has been put up for auction.

Mallya has been living in a three-storey mansion with a swimming pool and tennis court in the quiet Hertfordshire village of Tewin. The house, called Ladywalk, was bought from Lewis Hamilton’s father Anthony by offshore companies, believed to be linked to Mallya.

Last year, Mallya told the Sunday Times “my official address in the UK is at Ladywalk”, and said: “The ownership structure of Ladywalk is perfectly legal.”