Shah will play a 55-year-old officer whose commitment to the police force is questioned after the bombings, Mundhra told The Indian Express newspaper in an interview published on Monday.
"The film is a critical take on a policy that allows Scotland Yard to shoot anyone whom they suspect as suicide bombers, even without sufficient evidence,'' he was quoted as saying.
Shah's character in the film has served in the force for 30 years when his loyalty is called into question. Mundhra said he plans to begin filming next month.
Shah, 56, who has acted in more than 120 movies in the last 30 years, is well known especially for his work in art-house cinema. He also starred as Captain Nemo in the 2003 Hollywood film "The League of Extraordinary Gentlemen.''
Relations between the British government and many British Muslims have been strained since the July 7, 2005, bombings of three subway cars and a bus by four British-bred Muslim bombers that killed 52 people.
While the government has expressed concern about radicalization within Britain's Muslim community, British Muslim organizations have spoken out against treating the entire Muslim community as responsible for the actions of a few.
Mundhra's latest movie, "Provoked,'' is the story of domestic violence suffered by an Indian woman married to a British-born Indian man. The film stars Bollywood actress Aishwarya Rai.