Bhubaneswar, June 1: A day after the state government snapped deal with Air Odisha Aviation Private Ltd, its founder Santosh Pani, 34, was today arrested for allegedly duping Sandeep Ray, the son of former Union minister and Rourkela legislator Dilip Ray, of Rs 40 lakh.

The private airline is also facing another case in which a city-based jewellery shop owner Mitesh Dinesh Khimji had accused it of not transferring 40 per cent of share in lieu of Rs 1.5 crore, which he had invested in the company.

Deputy commissioner of police Satyabrata Bhoi said that though Sandeep had approached the police in March, he lodged a formal complaint with the police today.

"Prima facie there was evidence of the private airline not returning money to Sandeep. Pani was arrested for cheating," Bhoi said. In March, Sandeep had alleged that though he had invested Rs 80 lakh in the company in 2015, the company had returned him only Rs 40 lakh.

Ever since the company launched intra-state flight operations on January 19, it has been in the eye of controversy. Trideeb Rout, who claimed himself as one of the directors of the company, was arrested from Biju Patnaik Airport for threatening his wife. However, the private airline had denied Rout's connection with the company.

In April, a city-based jeweller Mitesh Dinesh Khimji had also accused the company of breach of agreement.

The state government on Monday decided to terminate its agreement with the airlines with effect from June 26 following differences over key issues, including airfare. The private airlines had launched intra-state flight operations from Bhubaneswar to Rourkela, Sambalpur, Jharsuguda and Jeypore with ticket price ranging from Rs 2,449 to Rs 5,500.

The private airline, however, today made it clear that they would continue their operations despite the government's decision.

"We would continue our services despite the latest development. However, we will be forced to revise the ticket prices without the government subsidy. We apprehend that the fares may double," Pani told The Telegraph few hours before his arrest.