The decision was taken at Chief Minister Arvind Kejriwal's residence in a meeting attended by around 56 party MLAs.
The party's highest decision-making body, the Political Affairs Committee (PAC), met soon after and formally approved the decision.
"Sushil Gupta has made big contributions in the education and health sectors in Delhi and Haryana. He provides free education to 15,000 children.
"Narayan Das Gupta is the former president of the ICAI (Institute of Chartered Accountant of India)," Deputy Chief Minister Manish Sisodia told reporters.
Elections to three Rajya Sabha seats from Delhi would be held on January 16. The AAP, which enjoys a brute majority in the 70-member Delhi Assembly, is set to win all three seats.
Disgruntled AAP leader Kumar Vishwas said he has been "punished" for speaking the truth after he was denied a Rajya Sabha nomination.
Kumar Vishwas, who was angling for a RS slot, did not attend the PAC meeting though he is a member of the PAC.
Expressing his dissatisfaction he said, "For the last one-and-a-half years, be it the PAC (Political Affairs Committee) or my elder brother Arvind Kejriwal's decision on issues like surgical strike, taking a soft stand on terrorists, his silence on ticket distribution and JNU... whatever truth I spoke, I have been punished today," Vishwas told the media here.
#WATCH: Kumar Vishwas talks to the media after announcement of AAP's Rajya Sabha nominees, says, 'In the form of punishment, I have been given an award for speaking the truth.' pic.twitter.com/xGoxpKvXZg
— ANI (@ANI) January 3, 2018
Vishwas spoke derisively about Gupta.
"I congratulate Gupta for working with Manish Sisodia for the last 40 years, with Kejriwal for 12 years, with party workers for seven years and for party legislators for the last five years."
Clearly blaming Chief Minister Arvind Kejriwal for the decision not to nominate him, he said nothing happens in the party without Kejriwal's consent. "It is impossible for anyone to survive in the party by speaking against you," he added.