Favorskii rearrangement
This is an old question, but in case anyone comes down this road...


  Aren't alpha halo carbonyl compounds extremely fast and reactive via $\ce{S_{N}2}$
  (the fastest i guess)?


I don't think so. In an $\ce{S_{N}2}$ reaction a nucleophile is attacking a positively polarized carbon atom.  The more positive charge on the carbon, the more the nucleophile is attracted.  Look at structure I below, it shows one of the resonance structures for a carbonyl that leads to a polarized carbonyl with positive charge on the carbonyl carbon.  Now to whatever degree the adjacent C-Cl bond is polarized with positive charge on carbon, we wind up with an unfavorable electrostatic situation of adjacent positive charges.  Said differently, the presence of a carbonyl group suppresses polarization of the adjacent C-Cl bond, which will make the C-Cl carbon less prone to nucleophilic attack.




  And if the alpha carbon(to which the halide is attached) is tertiary,
  there should be a high chance of an elimination product via E 2  (leading to the 
  formation of alpha beta unsaturated carbonyl), right?


No, you want to remove hydrogen D in the diagram below.  Hydrogen D is much less acidic than hyrdrogen A because removal of the latter results in a resonance stabilized carbanion.  The difference in acidity between hydrogens A and D is so large that effectively only hydrogen A will be removed by a nucleophile.

These two arguments effectively eliminate pathways C and D from consideration.  Pathway B is simply an equilibrium that goes nowhere, so it has no real effect on the outcome of the reaction. This leaves pathway A, the Favorskii reaction, as the only viable alternative.  Pathway A, besides being the only game in town, is actually favored by two factors, 1) as noted above, hydrogen A is acidic and it's removal produces a resonance stabilized carbanion, and 2) completion of the Favorskii reaction is strongly favored by entropic factors since the carbanion and the C-Cl carbon are contained in the same molecule and held relatively close together.