"His cinema is neither abstruse or abstract like art films nor is it escapist and unrealistic like hardcore commercial cinema," Khanna said.
"Like the Buddha, Mukherjee successfully followed the middle path between the two extremes," he added.
Mukherjee, who is bedridden in Kolkata and could not attend the function, sent a taped message which was played for the audience.
"I love human beings. People should remain happy in life. That's the most important thing. And that is my message for everyone," the 83-year-old filmmaker said.
"I personally think that Satyakam is my best film. I dreamt of a world without corruption or nepotism and that is what I tried to show in it," he added.
The retrospective kicked off on Sunday with the screening of Mukherjee's film Anand (1970) which stars Khanna as a terminally-ill young man who faces certain death with a rare exuberance.
Seven of the veteran filmmaker's films including Anupama, Guddi and Namak Haram are being screened as part of the IFFI retrospective.
Khanna later visited the film bazaar and art exhibition being held as part of the film festival.