The child was allegedly abducted by his maternal grandfather on April 10 and sold off with the help of Sunita, a nurse and Gurpreet Singh, another employee of the same nursing home, police said.
Gurpreet Singh is alleged to have shown the picture of the baby on Facebook before finalising the deal with the Delhi-based businessman for Rs 8 lakh.
The child was located by the police based on a complaint by his mother, who was suspicious of her father's new found wealth.
The police said that during the preliminary investigations it was revealed by the grandfather that since his daughter had been deserted by her husband, he wanted to arrange her second marriage.
"So he thought he should get rid off the child of her daughter from her first husband by selling him off," Ludhiana Commissioner of Police Ishwar Singh said.
The baby's grandfather and others involved in the case have been arrested. The police are now on the lookout for the businessman in Delhi.