Police, however, said the two had "criminal records" and their death was most probably the fallout of a "dispute that turned violent".
Anil Kesarwani and Suresh Pasi, both in their 20s, were found dead in the playground of a degree college located in Khuldabad area.
The news spread soon to Karbala locality, barely a few hundred meters away, where both lived.
Their family members and neighbours rushed to the police station and alleged the two were picked up last night by some policemen who said they suspected the involvement of duo in a theft case.
Alleging the youths were killed by policemen in a "fake encounter" who dumped their bodies in the college playground, the locals demanded that an FIR be lodged against the "erring police personnel".
However, Additional Superintendent of Police (City) Shailesh Kumar Yadav said "both the deceased had a criminal record. They were named in a number of cases relating to petty crimes."
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Most probably, they had got into a brawl with their associates over their share in some stolen valuables, he said.
"Their killing is most probably the result of a dispute that turned violent," Yadav said.
"We are, nevertheless, inquiring into allegations of the locals," the police officer said.
"If we come across any evidence suggesting policemen's involvement in their killing, we will not hesitate to take action," Yadav said.
The bodies had been sent for post-mortem.