I was hoping I would get to know about arbitrage and how its carried out. Wissam's post does explain the process but could anyone let me know more about it.
So, he wasn't banned for arbitrage, he was banned for having a crappy site. It had nothing to do with arbitrage. You're reading between the wrong lines. Having nothing to offer is against the TOS. Period.
That's why it's better to do arbitrage with a real, user-friendly site. If you have a site that gets an average of 10 pageviews per visitor with a 5% CTR, than you only need to bid on keywords that are half of you average earning per click to break even. And on top of that you probably gain some loyal visitors who are going to keep coming back. Forget about CTR, what you really want to calculate is RPV - Revenue Per Visitor. Than you know how much you can spend on you PPC campaign.