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I needed to remove the manage.py from the directory where i had my project (the directory where the docker-compose.yml is in).
I guess once you start a project, you install new requirements on the container itself and add them to requirements.txt for the next time you build your project from scratch.
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Sorry for the late addition but I thought it might help someone. I had also encountered this same problem and inspite of removing manage.py from the folder where my .yml and Dockerfile existed, it gave me same error.
I have no idea where it made the code directory which had the manage.py file. But I worked around it presently by changing the service name in the yml file and restarting the project with the new service name.
docker-compose run newservicenm django-admin.py startproject projectname directoryname
This worked as a new container!