Police have arrested four senior officials from CMJ University in the northeastern state of Meghalaya on suspicion of fraud and forgery and are hunting for the chancellor, who has fled.
"We are not sure about his whereabouts, as he keeps changing his location frequently," senior state police official Sunil Kumar Jain told AFP.
The private university, established in 2009 in the state capital Shillong, handed out 434 PhDs during the 2012-13 academic year despite its small faculty, arousing suspicions a
mong local officials who filed a police complaint.
A PhD at CMJ University takes between two to five years and costs 127,000 rupees ($2,250), according to its website.
"In good faith, the universities were given permission to operate, but some seem to have taken this for a ride and this is distressing," said Meghalaya chief minister Mukul Sangma.
Credentials fraud is a serious problem in India, fuelled by a huge demand for qualifications, endemic corruption and poor regulation of the ultra-competitive and fast-growing education sector.
In 2011 a racket in fake airline pilot licences was exposed, while in 2010 police arrested the head of the national body responsible for certifying medical qualifications for allegedly accepting a bribe.
The Times of India reported on Monday that PhDs from CMJ were on sale for between $4,000-10,000, with the amount paid determining how quickly the qualification would be granted.
SP Sharma, a lawyer for CMJ University chancellor Chandra Mohan Jha, accused the state administration of being "prejudiced" against the university.
Anguished CMJ students issued a deadline, set to expire Thursday, to the Meghalaya government to resolve the debacle and give them some clarity about their futures.