The outfit, Sangharsh, had accused the organisers of playing with the nationalist sentiment of people of India, at a time of tension with Pakistan after the Uri terror attack.
They had also sought police permission to protest over the screening of the 1958 Pakistani film at the 18th Jio MAMI Mumbai Film Festival with Star, which begins fromOctober 20.
"Given the current situation, the Jio MAMI 18th Mumbai Film Festival with Star has decided not to programme 'Jago Hua Savera' as part of the Restored Classics Section," organisers of the festival said in a statement.
The film was co-produced during the days of undivided Pakistan (now independent Pakistan and Bangladesh) and shot in Dhaka.
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It tells the tale of life in a small fishing village where everyone dreams of owning their own boat.
The film was set to be screened in the 'restored classic' section of the festival, which is chaired by superstar Aamir Khan's wife Kiran Rao.
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Meanwhile, Prithvi Mhaske of Sangharsh Foundation, Censor Board of Film Certification member Ashoke Pandit, filmmaker Vivek Agnihotri and actor George Baker have welcomed MAMI's decision to not screen the film.
Pandit, who is also a member of Indian Motion Picture Producers Association (IMPPA), thanked the organisers.
"Thank you #MAMI for not showcasing any #Pakistani film in this year's edition of the Mumbai Film Festival. #JagoHuaSavera," he tweeted.
Popular actor from Bengali and Assamese cinema, Baker, said the priority right now should be the national sentiment.
"I appreciate the quality of the film, though I haven't seen it. It has traveled to festivals and won several awards. It had Indian artistes and was shot by a Pakistani.
Agnihotri said he is against any kind of ban, but feels culture is a strong weapon to give it back to Pakistan.
"I'm absolutely against any kind of ban or boycott but at the same time I am wise enough to understand when my country has taken a strategy to isolate Pakistan it's not against a film or an actor. It's to send a message to Pakistan that if you do not stop terrorism then this is the price you will have to pay," he said.