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The corporator Pawan Chandrakant Pawar threatened Deepak Bhatia twice and demanded money from him, they said.
Pawar, a resident of Shivaji Nagar area in the city, is a corporator from ward no 35 (A) of the NMC.
According to police, he demanded Rs one lakh from Bhatia on Sunday night and again on Monday, following which the victim lodged a complaint against the accused.
Further investigations are on, police added.