Sr. Inspector Sam Bharucha (Naseeruddin Shah) is an honest Police Officer carrying out his duties diligently. The film commences with the story four college going boys in their teens who have resorted to the profession of sharp shooters for easy money. They kill Ramanna, a hotel owner and flee. One of their colleagues, Martin, is suspected of being involved in anti-social activities by his parents after they chance upon a huge amount of money and a revolver in his bag and immediately hand him over to the police. Inspector Bharucha decides to nab the other three.

Inspector Bharucha instructs his team to arrest all of them. The three boys try to escape and a shoot out takes place in which the police squad guns down Sonal and Nana while Lallya is shot by Inspector Bharucha himself. Inspector Bharucha has never ever killed anyone in his long career as a cop and the realization that he has actually killed someone, torments him. His guilt becomes worse when he realizes that Lallya was on the verge of surrendering himself. The bodies of the other two sharp shooters are claimed by their parents and guardians while Lallya`s body remains unclaimed.

Punappa Avadhe (Dilip Prabhawalkar) takes the police department and Inspector Bharucha for a ride by claiming that he knows Lallya`s family and will help Bharucha find them. Does Punappa really know Lallya`s parents? Or is he fooling the Inspector and his team?

The various questions that arise in his mind and perhaps their answers... are mirrored in ENCOUNTER... THE KILLING