Sources told NDTV the two brothers met around noon over a property dispute. The meeting began peacefully but turned violent after a fresh dispute emerged.
Mr Chadha, whose actual name is Gurdeep, reached the farmhouse in Mehrauli with about 30-40 men, followed by Hardeep and his men. (Read: Ponty Chadha - from snack-seller to liquor baron)
"First Hardeep shot Ponty, whose gunmen fired back at him. The firing was a result of a property dispute. The incident happened around 12.30 pm," a senior police officer said.
Sources said both the brothers were shot around their chest. There were 12 bullet wounds in Mr Chadha's body; Hardeep sustained four. Narender, an employee of Mr Chadha, was seriously injured and underwent surgery in hospital.
The shootout happened near the gate of the farmhouse. Around 1 pm, a call was made to the police from inside the premises.
Police have detained five personal security officers of the Punjab police accompanying the two brothers and are questioning them. Three officers were attached to Mr Chadha and two to his brother. The statements of some construction workers at the farmhouse are also being recorded.
This was the second incident of firing at Mr Chadha's residence. On October 5, gunshots were reported from his house in Uttar Pradesh's Moradabad district.
Mr Chadha, who was 55, hit the headlines in February this year when the income tax department conducted searches at his premises in Delhi, Noida, Moradabad and Lucknow.
Mr Chadha singularly ruled over the liquor business in Uttar Pradesh. He was granted the sole distributorship for liquor under the Mayawati regime. He allegedly bought liquor at low prices and subsequently sold them at exorbitant rates.
Pegged at Rs 6,000 crore, his corporate assets - including liquor - spanned across real estate, sugar, film production and exhibition. Mr Chadha was producer of the Sunny Deol-starrer Jo Bole So Nihaal.
Mr Chadha, along with his brothers, managed the Chadha Group, which has been consolidated under the Wave brand. He ran a popular chain of multiplexes - Wave Cinemas - in the National Capital Region.
The group's Centre Stage Mall in Noida Sector 18 is the first shopping mall in the National Capital Region. It also owns malls in Kaushambi, Lucknow, Moradabad and Ludhiana.
Mr Chadha was known to be close to the Samajwadi Party but shifted loyalties to the Mayawati-led Bahujan Samaj Party regime. His business is thought to have flourished ever since.
Apart from the sway that his group holds over the liquor business, Mr Chadha also allegedly benefited in the sugar industry. Three sugar mills were awarded to his Wave Industries, which led to the state reportedly incurring losses to the tune of Rs 124.70 crore.
(With inputs from agencies)