The Punjabi film is said to be based on the events in the 1980s and 1990s when the state suffered from militancy. The film was slated to be released on Friday, April 5.
The ban on the film came after several senior government officials, including chief secretary of the state watched the film and decided to put a ban.
"The film was banned to maintain communal harmony in the state and it won't be released in theatres till further orders," said a statement from the government.
The film is said to glorify the Khalistan movement and its leaders Jarnail Singh Bhindrawale, Balbir Singh Rajoana and Jagtar Singh Hawara.
The film highlights issues like the murder of a human rights' activist, alleged police torture, fake encounters, jailbreak and the assassination of a politician.
The Central Board of Film Certification had declined to give a certificate to the movie.
The film was later cleared by the Film Certification Appellate Tribunal (FCAT). The Shiromani Gurdwara Parbandhak Committee (SGPC) - the apex religious body of Sikhs - had extended its support to the film after learning that the censor board had objected to a slogan in the film 'Raaj Karega Khalsa' (the pure would rule), which is commonly used in Sikhism.