The car was turned on its side and Mr Kaalidassan Suresh Anand, 33, a courier, thought it was just another accident.
But when he approached the scene near Edgefield Secondary School at Punggol Place at 9.30am on Tuesday, he saw coloured pills in foil packets and containers laid out on the road.
Mr Kaalidassan said he saw the male driver, who was dressed in a black Tshirt and green shorts, sitting on the kerb behind the car.
He then saw the driver getting handcuffed and escorted into a police car.
There were five police cars at the scene.
Mr Kaalidassan said: "I thought there was a dead body when I first saw the white cloth. Then I realised that it may be a drug-trafficking case."
The police were alerted to the accident at 6.44am.
A resident, who did not want to be named, passed by the scene on his way to work at about 6.30am.
He said: "I didn't hear anything before I saw the accident."
The driver, who is in his 30s, has been arrested in relation to the accident and for drug-related offences.
Investigations are ongoing, said a police spokesman.
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