The ill-fated bus was on its way from Delhi to Amritsar when the mishap took place around 2 am, police said.
The bus was swept in the gushing canal water about three kms downstream before getting stuck at Saundh headworks from where Bhakra Main Line Canal and Narwana Canal get separated, officials said.
Before plunging into the canal, the bus broke the railing along the national highway close to the floating restaurant near Sirhind.
Two bodies have been fished out from the canal waters, Fatehgarh Sahib SSP Gurmeet Singh Chauhan said.
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The bus had been pulled out of the canal with the help of cranes, police said.
Meanwhile, authorities have sounded an alert along Bhakra Main Line canal, Narwana canal and Sirhind feeder so that the bodies of other passengers could be fished out after being located.
Police and civil administration, along with divers, including from Army, are involved in search operations as it is expected that the bodies could have been swept up to some 30 kms in the canal, officials said.