The moment Aoshi's been waiting for, that is to fight Battousai and claim the title. Kenshin was wondering at first how would Aoshi's Kodachi be an effective weapon. As they begin their showdown, Aoshi seems to be a tough opponent leaving Kenshin a bit injured. To beat Aoshi's kodachi technique, Kenshin grasp the kodachi and gave him a serious beating.
Kanryu, who was severely humiliated at the way Aoshi and the Oniwabanshuu treated him. To nurse his ego, he decided to eliminate them with the use of gattling gun (who needs martial arts anyway).
As the rest of the Oniwabanshuu gathers into the room, Kanryu showed up with the gattling and fires it like a madman. However when Aoshi was hurt, the rest of his members protected him with their lives. Hannya also gets killed while he acts as decoy for Kanryu to get distracted. Kenshin was able to stop Kanryu's blood fest.
As Kenshin and the rest went to look for Megumi, they arrived just in time to stop her from committing suicide. Kenshin told Megumi that to pay for the lives she took, she must live so that she could give help to those who needs it.
The morning after the dead bodies were missing as well as Aoshi. So they presume that he was dead. Aoshi has buried his dead comrades somewhere in the forest taking a vow that he'll make Kenshin pay for what he has done.