Loha, is a story of Shankar (Dharmendra) the protagonist, a well-meaning but disgraced cop, determined to fight a corrupt system, taking to task miscreants and criminals in his city. The movie begins with an aspiring underworld don, Lukkabhai (Mohan Joshi) ousts his erstwhile mentor Tandyabhai (Deepak Shirke) to emerge as the reigning champion of a crime infested world. Elsewhere, Arjun (Mithun Chakraborty), an ex-military person, has forfeited his love and a respectable military career, as a consequence of sizing up with a local goon played by Rajesh Vivek. As a result Arjun seeks obsessive refuge in liquor.
Shankar chances upon Arjun incidentally and rescues Arjun when Arjun hits the rock bottom of his life. Meanwhile, severely inconvenienced by Shankar's righteous meddling, Lukkabhai molests Shankar's sister to teach Shankar a lesson and has her killed. Infuriated, Shankar teams up with Arjun, who now is indebted to him and Mustafabhai (Shakti Kapoor), who wants payback, as Lukkabhai had chopped his hands off.
Together, they deliver the king pin of the underworld and his minions to a well-deserved end. Re-instating a proverbial triumph of good over evil, restoring harmony and justice in the society. Thereby resurrecting their previously bruised societal images.