So I guess in the manga world, Pokémon that have owners can be caught in Pokéballs nonetheless.
Also, Pikachu would do 4x damage against that Gyarados due to the double water/flying weakness.
Misty kept being a gym leader to herself for now. Red must have returned her Gyarados, although it seemed like it was in a Super/Great Ball instead of the regular Pokeball Red used to catch it. Never understood why the ball types were renamed in the games' translation.