The man whose evidence led to the jailing of a police chief has been arrested on suspicion of fraud days before the crown will try to convince judges that he is still a reliable witness, the Guardian has learned.

Waad al-Baghdadi's evidence was instrumental in convicting the former Scotland Yard commander Ali Dizaei, who was jailed for trying to frame him after a clash outside a restaurant. On Tuesday the court of appeal will begin hearing Dizaei's appeal against his conviction, which will focus on Baghdadi's reliability.

The Guardian has learned that Baghdadi was arrested in London on 6 March over allegations of fraud. He was released on police bail until May and has not been charged. It is understood the allegations concern fraud running into thousands of pounds, which Baghdadi denies.

Baghdadi, the Guardian has learned, gave allegedly incorrect details about himself when he testified under oath before the jury hearing the case against Dizaei in February last year. It is alleged that Baghdadi:

• Did not use his real name in court, which is Maleki, or give his real age.

• Wrongly said he was born and lived in Iraq when he was born in Iran. This was one of the few questions the trial judge asked him directly.

• Said his parents were Iraqi and not Iranian as he told officials.

• Failed to tell investigators when he really entered the UK and the circumstances.

Dizaei's supporters say these statements show Baghdadi's evidence cannot be relied on. The crown will argue that the alleged false statements do not affect the truthfulness of his account that Dizaei tried to abuse his power to frame him.

The crown believes the inaccurate details given by Baghdadi to the court and officials stem from a time when he was trying to flee from Iran to a place of safety.

An early appeal hearing directed that Baghdadi be reinterviewed by the Independent Police Complaints Commission (IPCC), which investigated the case.

In that interview, the Guardian has learned, Baghdadi admitted he gave "false details" to British embassy officials to gain entry into the UK. He also secured documents to back up his account.

Scotland Yard chiefs are dreading an outcome which sees Dizaei's conviction quashed. After he was convicted and sentenced to four years' imprisonment, he was dismissed from the force. If he wins his appeal, he could be in line for backpay of more than £100,000.

Appeal court judges are usually reluctant to overturn jury verdicts.

Dizaei was an outspoken critic of the police on race, a former leader of the National Black Police Association (NBPA) and a key figure in a racism row that erupted at the top of Scotland Yard in summer 2008. He had been cleared of criminal charges in 2003 and returned to duty. That inquiry was intensified after MI5 suspected that the Iranian-born officer was a danger to national security.

Dizaei's 25-year police career ended with him being drummed out of the Metropolitan police in disgrace after a clash with Baghdadi in the street outside a restaurant in London. Dizaei was convicted of falsely arresting Baghdadi in a dispute over money and then lying in official statements, claiming he had been assaulted and threatened by Baghdadi.

The Crown alleged that on 18 July 2008, Dizaei clashed with 24-year-old Baghdadi, who claimed the police commander owed him £600 for a website he had designed.

Dizaei arrested him and, using the special call sign – Metro 35 – given to him as a commander, called for backup to take his prisoner away.

He claimed to have been assaulted and poked in the stomach with the mouthpiece of a shisha pipe. Dizaei filled out official statements and maintained his account on the witness stand.

Baghdadi spent 24 hours in a cell and six weeks on bail before it was decided he would not face charges. Scotland Yard handed the case over to the IPCC, which investigated Dizaei.

The jury were unanimous in finding Dizaei guilty of misconduct in public office and attempting to pervert the course of justice, deliberating for two hours and 31 minutes after a four-week trial. Dizaei was also expelled from the NBPA.