The encounter occurred in September 2008 against Indian Mujahideen terrorists in the Batla House, a locality in Jamia Nagar in Delhi.
As per reports, two suspected terrorists were gunned down and two other suspects were arrested, while one accused escaped that day.
Encounter specialist and Delhi Police officer Mohan Chand Sharma, who led the police action, was shot dead during the incident.
"We have touched upon real life incidents earlier with films like 'Lucknow Central' and 'Airlift'. We have been doing research on the subject of 'Batla House' for four years, we have NOC from everybody. It is based on the life of a police officer who was involved in the 'Batla House' operation," Advani told PTI.
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In the film, Saif Ali Khan will portray the role of a police officer Sharma.
Besides this film, Advani and Khan have also teamed up for "Baazaar", that revolves around Indian stock market.
"We are very excited about 'Baazaar'. It will release in May this year and after that 'Batla House' will happen and a couple of other films," he adds.
The director-producer recently announced another film, an action-thriller starring John Abraham and Manoj Bajpayee.
"One of the important thing as a producer for me is to bring out unusual casting. John is an action star and Manoj is an extremely good actor. When I heard the story I was excited about it. My endeavour is to choose a correct script and get an unusual yet apt casting as 50 per cent of the battle is won," Advani says.
His another home production film is "Marjaawaan", a dark love story in the "Ek Villain" space and Advani says, the team will announce the details once everything is in place.
Meanwhile, Advani is one of the jury members for REEL movie awards honouring artistes who have entertained audiences with their creativity through excellent storytelling.
Film critic-TV host Rajeev Masand will moderate the jury panel that also has names such as Sudhir Mishra, Sujoy Ghosh and Farah Khan. The awards will be announced on March 20. PTI .