India's art world is reeling from one of its most embarrassing forgery cases after S.H. Raza, one of the country's foremost artists, inaugurated an exhibition of his paintings in Delhi – only to discover that most were fakes.

Mr Raza, who is based in Paris, had contributed some drawings to the show at the Dhoomimal Gallery while the gallery had borrowed about 30 more paintings – supposedly his early works – from his nephew.

"When I reached the gallery and started looking at the canvases on the walls, I was stunned," Mr Raza wrote in an Indian newspaper.

"As I moved from one canvas to the other, I realised that the works were just not mine, they were all fakes," he said. "I will turn 86 next month. At this stage of my life, this was the last thing I wanted to do – grace an exhibition of my own fake paintings."

Mr Raza is one of India's most famous living artists and his works are in high demand internationally, with one painting selling for about £1.3 million at a Christie's auction in London last year.

Guests at the inauguration on Saturday night described how Mr Raza had quietly inspected the paintings, with his nephew and the gallery owners, before informing them that they were forgeries.

Uday Jain and Uma Jain, the gallery owners, apologised to the veteran artist, saying that they had been duped, and cancelled the show half an hour later.

"I was very upset that it happened at my gallery," Mrs Jain told The Times. "But the fact that we invited Raza to attend clearly shows our commitment to showing only authentic art."

She said that she had borrowed the paintings from the nephew, Z. H. Zafri, and had told him clearly that his uncle would be inaugurating the exhibition.

She also said that Mr Zafri had told her that the paintings came from Raza's former home in the central Indian state of Madhya Pradesh.

"All I know is that these paintings were loaned to us by Zafri, and when Raza saw them he expressed doubts about them," Mrs Jain said. "He was very angry, but that is between him and his nephew."

Mr Raza has since filed a lawsuit against Mr Zafri. Neither man was immediately available for comment.

The scandal highlights the lucrative opportunities for forgers in India, which has witnessed an unprecedented boom in demand for local modern and contemporary art over the past few years.

The vaule of Indian art sold at auction has risen from about $5 million (£3.4 million) in 2003 to $150 million last year and the local art market in India is now estimated to be worth around £200 million.

But art experts and dealers say that one of the main risks for buyers is that India does not have any fixed mechanism for authentication of art works.

"Forgery is a tremendous problem now," said Mrs Jain. "In the last 10-15 years, so much money has come into the art market and a lot of people who are buying don't have much experience."