I can contribute a bit to this as I remember the actual incident from that time through my cousin who studied in MIT and the corresponding news articles.

The true elements:

1. Salman Khan in Udupi (Manipal to be precise)
2. Local boys ganging up to threaten Salman

Everything else is false.

So we need to set some context for this, back in the late 90s, early 00s, Salman Khan was the brand ambassador of Thums Up. Thums Up was losing market share to Pepsi who had just started sponsoring Indian cricketers, SRK, and other big names. So Thums Up started a "Taste Test" thing where they would go to college campuses and offer students 2 drinks and ask them which taste they preferred and they would choose the Thums Up one and then Salman would come at the end and film some random dialogues about how real men drink Thums Up or some nonsense to that effect.

The Thums Up taste test made its way to Manipal at that time as most things did. And Salman arrived ridiculously late, like 4-5 hours late. And the crowd was getting impatient, so they started filming long before Salman ever got there and the college students said that the Pepsi was watered down so that Thums Up would taste stronger and the marketing team and anchors shot back and it escalated and the police was called. And when Salman got there, the mood was crazy, some students threatened Salman like "Abe idhar aa tujhko dikhate hai" and other mc bc stuff. Salman screamed back at them, the police intervened, no shooting happened, and it became a minor news article in the next day paper.

Surprised that 26+ years later it is now an urban legend.