Mukherjee was suffering from blood cancer and was under treatment since last year, family sources said.
He was 84 and leaves behind his wife Kamala, sons Subhash and Sanjay and a daughter who is in USA.
His sons, Subhash and Sanjay lit the funeral pyre at the Santacruz crematorium where a galaxy of film personalities were present to pay their homage to the veteran film maker. Among the film personalities who attended the funeral were Shakti Samanta, Debu Mukherjee, Joy Mukherjee, Chandrashekhar, Somu Mukherjee, Subir Mukherjee, Santosh Jain and Ram Dayal. Earlier, film thespian Dilip Kumar and his wife Saira Banu visited Mukherjee's residence in suburban Khar to pay their homage to the departed soul.
"In the death of Mukherjee, Bollywood has lost a veteran film personality", Dilip Kumar said. Mukherjee has to his credit several box office hits including "Jungalee", "Muneemji" `Love Marriage', `April Fool', `Shagird', `Romeo' and `Sharmilee'.
Born at Jhansi in Madhya Pradesh, Mukherjee took keen interest in sports during his school days. He went to Lucknow to learn early lessons in tennis and took keen interest in the game in the years that went by.
Mukherjee, who was also a freedom fighter, was jailed in 1942 for three months. Thereafter his family insisted that he should shift to some other place for a living and Mukherjee came to Bombay to join his brother, Shashadhar Mukherjee who was associated with Filmsthan studio.
Soon Mukherjee rose to become assistant director in the studio and got his first break as a director in "Paying Guest" but left the film mid-way to direct another film "Muneemji" which was released prior to "Paying Guest".
The songs of Mukherjee's film became instant hits like "Jeevan Ke Safar Mein Rahee" in film "Muneemji" and " Mana Janab Ne Pukara Nahin" in film "Paying Guest". The title song in Mukherjee's film "Jungalee" made a sensation nearly four decades ago.
He introduced Saira Banu in the lead role in film "Shagird" and Rakhee in "Sharmilee".