A senior police officer said the fire broke out at 3.25 AM, probably in the ground floor kitchen of Golden Park hotel in the city's high-security zone.
The US Consulate and the British Deputy High Commission are also located in the area.
"Smoke from the kitchen spread to the other parts of the hotel through the ducts of the centralised air-conditioning system. Most of the guests were sleeping when the fire broke out and the panic-stricken people were clueless as regards how to get out," the officer said.
Acting on a complaint lodged by a Fire Service department official, police from the Shakespeare Sarani station arrested the hotel owner, B S Gujral, and manager Gautam Majumdar.
Both have been booked under the WBFS Act as well as IPC sections 304 (causing death by negligence), 308 (attempt to commit culpable homicide) among other relevant provisions.
Eyewitnesses said guests on the second and third floors of the hotel tried to jump out of the windows in panic.
Firefighters and disaster management personnel had to break open the glass windows of the hotel to let out the thick smoke, the officer said.
The two deceased were identified as Anup Agarwal (53) from Gujarat and Chamar Kishan (52) from Odisha.
"Both were declared brought dead by doctors at the nearby SSKM hospital. Going by the nature of their death, it seems they died due to suffocation caused by the thick smoke. The post-mortem report is awaited," the officer said.
"Initially, we could not identify Kishan and mistook him for another guest. Later, his identity was established from the hotel records," he added.
State Fire Minister and city Mayor Sovan Chattopadhyay and senior Kolkata Municipal Corporation (KMC) officials visited the site of the fire mishap.
"We are checking whether the hotel had a proper fire-fighting arrangement. As per our officers, the fire alarm did not work during the incident. We are checking it," a KMC officer said.
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