Yes, this move is an over reaction. Especially, banning archive.org... India was just hit with a terrorist attack in Bangalore very recently. The techdirt article should mention this part.
As an Indian citizen who lived in bangalore. I can tell you there are couple of more plausible reasons why police/politicians don't want late night hotels.
1) They can charge bribes from such clubs/hotels. This is single biggest reason.
2) Politicians can tell to conservatives that they are protecting Indian culture and get votes from them. Conservatives are more likely to vote than these club going crowd.
Specific intelligence might have been a reason but 1am drama happens very year in every South Indian city, so I am less likely to believe it.
"The Home Minister today asked the state government to install CCTVs in all key places in the city."
And they're going to ask restaurants to close at 1am on New Year's... As if that'd accomplish anything.