The incident came to light after an audio message of the man went viral on social media, in which he accused the panchayat of "humiliation" by directing him to drink the urine of a girl.
Following the incident, the police, so far, has questioned 10 persons in the case, which has become a point of debate in the state.
"We have launched an investigation into the mysterious death of Fazal Hussain whose body was fished out from the Samar Sar lake on July 30. So far, we have questioned 10 persons and the probe is progressing well," Senior Superintendent of Police, Rajouri, Yougal Manhas said.
Hussain, a post-graduate and a resident of remote Targain village of Budhal, had gone missing on Saturday. His body was fished out from the lake next day following which police started inquest proceedings to ascertain the facts about his death, he said.
The officer said the case took a different turn when police recovered a mobile phone and came across an audio message, recorded by Hussain before committing suicide, in which he claimed that he was committing suicide in view of "humiliation" caused to him by the local panchayat by levelling false allegation of rape against him and directing him to consume the urine of the girl.
Manhas said neither the family of the girl nor the man approached the police and instead tried to sought out the matter in the local panchayat.
After the panchayat's diktat, the man sought two days to get "mentally prepared" to face the punishment but apparently jumped into the lake to end his life to escape the penalty.
The girl's father had approached the panchayat, accusing Hussain of raping his daughter, the claim which was reportedly denied by the youth in the panchayat.
The panchayat "favoured" the girl's father and asked Hussain to pay money to the girl. When he refused, the panchayat came out with a directive asking him to drink urine of the girl.