Abdul Rahim, 35, held his family members hostage at gun point late last night in Morgah area of Rawalpindi, Dawn News said.
Rahim shot and injured his father-in-law - aged around 50 - and held the rest of his family hostage before the police succeeded in arresting the suspect, police said.
"When the situation occurred we contacted his uncles and other male members of the family, who suggested that Rahim is mentally unstable and often does these things. They said that they would want to solve the matter themselves," police officer Raja Taifoor Khan said.
"His uncles went to speak to him, and Rahim who had said that he would not hurt them opened fire at them," the officer said.
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"We decided to take the matter in our own hands after that and started an operation to free the family and take Rahim into custody," Khan said, adding that the police first threw two tear gas shells into the house and then entered it to rescue the family.
As the police entered the house, Rahim opened fired at them and was injured as a result of police's counter firing. "Other members of the family are safe, although one aged woman lost consciousness because of the tear gas; she along with Rahim have been shifted to District Headquarter Hospital," Khan said.
He got drunk after suffering heavy gambling losses, including machinery from the family's construction business and held his family hostage to demand money, police said.