Seventeen people have been arrested, but gangster Binu, whose birthday was being celebrated, escaped.
The police say Binu, 47, faces more than 28 cases, including murder.
His birthday turned out to be a giant celebration for the police, which had several wanted men under the same roof, gift-wrapped.
Most of the guests have been in hiding for years. Binu had managed to avoid being caught for two years.
Acting on a tip-off, special teams of policemen including assistant commissioners and inspectors barged into the venue on the outskirts of Chennai. The policemen had taken their private cars to stay inconspicuous.
The menu was biryani and beer, and when it was time to cut the cake, close to midnight, someone handed Binu a machete instead of a knife.
When the gangsters realised that policemen had joined the party, many tried to sneak away.
Weapons such as machetes, knives and sickles, apart from 60 expensive mobile phones were seized from those arrested.
There were 45 bikes and seven cars.
A routine check delivered the police this massive break.
One of the "guests" - facing charges like extortion and kidnapping - was heading on his bike to the party when he was stopped. He reportedly told the police about a party at 9 pm. In the next few hours, the police planned their surprise.