After arresting Mohit Goel, director of Noida-based Ringing Bells police said they were searching for four more directors of the company that launched the world's cheapest smartphone.
Goel was detained late on Thursday after an FIR was filed by Ghaziabad-based Ayam Enterprises, alleging that Ringing Bells defrauded it of Rs 16 lakh.
"We are trying to arrest four other directors -- Anmol Goel, Dharna Garg (Mohil Goel's wife), Ashok Chadha and Sumit Kumar -- named in the FIR," Superintendent of Police Salman Taj Patil said.
As news of Goel's arrest emerged, several other distributors reached the police station, describing their suffering at the hands of the company, the official said.
In the FIR, Ayam Enterprises claimed it was persuaded by Goel and other company officials to take up the distributorship of "Freedom 251" (costing less that $4) smartphones in November 2015.
In India, each phone was to cost Rs 250.
"We paid Rs 30 lakh to Ringing Bells through RTGS on different occasions. But it delivered us product worth Rs 13 lakh only. Upon follow-up, we could get products plus money totalling Rs 14 lakh," the company said.
According to Akshay Malhotra, one of the distributors of Ayam Enterprises, Goel contacted him two years ago to become the clearing and forwarding (C&F) agent for his products.
Malhotra paid Rs 30 lakh to Goel in four instalments but Goel did not supply the consignment even after the promised delivery time lapsed.
After much persuasion, Goel supplied the first consignment of mobile phones, called 'Freedom 251', worth Rs 8 lakh. After finding them substandard in quality, Ayam Enterprises returned them to Ringing Bells.
Ayam Enterprises was later forced to accept power banks and LFD bulbs from Goel in place of mobile phones, Malhotra claimed.
After registering the FIR under sections 420, 406, 467, 468, 471 and 120 (b) of the Indian Penal Code, police arrested Goel from his residence at ATS Towers at Indirapuram on Thursday.
A report in TeleAnalysis, a leading news portal on the telecommunication and technology industry, claimed in December that Ringing Bells owners had shut down the company and opened a new firm, MDM Electronics Private Ltd.
Ringing Bells later refuted these charges.
After announcing that it had delivered 5,000 'Freedom 251' smartphones to customers in July last year, Ringing Bells said it would deliver 65,000 more to those who had booked the device in cash on delivery (COD) mode.
After that, no new numbers were shared. The company has since forayed into making TVs and other smartphones, burying the Freedom 251 dream.
The company in mid-February last year had planned to deliver 2.5 million handsets before June 30. Ringing Bells received mammoth -- over 70 million -- registrations before its payment gateway crashed.
The world's cheapest phone made a splash across the globe, with almost every big media house writing about the "miracle device".
Doubts were initially raised over Ringing Bells' handset after some experts said no smartphone could be manufactured for less than Rs 2,000.