Police raided a house at Daksal village in Akhnoor on Saturday evening following a tip-off and arrested the agent Chander Prakash and 15 youths who were to take the exam, they said.
Copies of the question paper were also seized from the house, they said adding that the youths were to take the written test for recruitment as sepoys in the Army on Sunday.
A preliminary investigation revealed that Prakash worked under one Vijay Kumar, who took the money from the candidates and sent them to collect the question paper from Prakash, they said.
A case has been registered against the 16 people arrested and a search is for Kumar.
The Army recuritment drive opened in Daksal army camp on November 16.
