What is the correct reaction mechanism?
I see what went wrong. Such questions are often confused with aldol or cannizarro as they have a carbonyl group and a base is given.
Actually this is a completely different name reaction called Favorskii rearrangement. The key to identify it is that its applicable to α-halo ketones.
In Favorskii rearrangement, the base takes α-hydrogen from that side of ketone which is opposite to the side having the halogen. It then forms a 3 member cyclic ring as an intermediate product. The product formed is a carboxylic acid derivative, mostly ester.
You can learn more at organic-chemistry.org or wikipedia