Acting on a tip-off, the Palghar police arrested Bilam Bose (52), a retired Indian army major, and alleged member of the D K Rao faction of the Chhota Rajan gang, red-handed yesterday, as he was collecting Rs 5 lakh in ransom from Santosh Shetty, a property dealer.

"Shetty was receiving threats from Bose and his associates for the last one month. We had been keeping a watch on the suspect for some time. Bose was living in Borivli since he retired from the army a year ago," said Deputy Superintendent of Police (Palghar division) Mohammed Makandar.

Police sources said Bose, who was unemployed since he resigned from the army, might have joined the underworld to supplement his inadequate pension. A key member of the D K Rao gang, a white-collared criminal, is suspected to be the key link between the army man and the gangsters.

Police sources said that Bose's military training and command over many languages could prove to be an asset for the gang. Several gangs have shifted base to Palghar and Dhanhu, about 120 kilometres from Mumbai.