The action came when he was spotted at Mumbai airport and was preparing to board a flight out of the country along with his wife to Dubai, late on Wednesday night.
Rizwan, 30, is the son of Dawood's younger brother, Iqbal Ibrahim Kaskar, who is currently in custody in Thane since nearly two years in different cases of extortion in Mumbai and Thane.
Earlier on July 15, the AEC had arrested Ahmed Raza Wadharia, a confidante of Dawood gangster Fahim Machmach in an extortion case.
During Wadharia's interrogation, Rizwan's name also cropped up and after confirming the information, the police set a trap for him and nabbed him.
Wadharia revealed that Rizwan had introduced him to Machmach and another aide of the don, Chhota Shakeel.
Machmach had called up a businessman and warned him against demanding money from his business associate, Ashfaque R. Towelwala, following which the businessman complained to the AEC.
The money was due to the businessman from Towelwala for a business deal they had conducted, but Machmach interfered and threatened him with dire consequences.
The police have arrested the trio Wadharia, Rizwan and Towelwala in the case.
They were produced before a Mumbai court on Thursday evening and remanded them in police custody till July 22, said an official.
The AEC is now investigating whether they are involved in similar extortion cases with other businessmen in the city directly or through associates.
( With inputs from IANS )