"It takes off from Anara Gupta's case but moves on from there," tells Bhatt, who was in Kathmandu in search of a heroine.
Former Miss Jammu Anara became an object of negative publicity last year when police arrested her on the charge of appearing in a pornographic video film. However, forensic experts later cleared Gupta who claims she was coerced into making a false confession.
"Blue Film", one of the three to four new projects that Bhatt plans to complete in 2005, will echo the plight of a protagonist who becomes a victim in a billion-dollar blue film industry.
"In the part of the world I come from, pornography is called 'neela zaher' meaning blue poison. 'Blue Film' is about the cyber pornography that has erupted in India today. It is the story of a victim who locks horns with the industry," says Bhatt.
To be played by Bollywood actor Kunal Khemu, who debuted as a child artiste in one of Bhatt's earlier films, "Zakhm", the protagonist, like Gupta, is a Kashmiri.
"I chose a Kashmiri Brahmin because they are among the most orthodox people," Bhatt explains. "Also because my character is already uprooted from his home town, his family. The drama is strongest when an orthodox individual is subjected to that kind of outrage."
Struggling to survive in his adopted city Mumbai, Bhatt's character falls in love, marries and goes on his honeymoon little knowing his bliss is going to turn into poison soon.
A hidden web cam photographs the intimate scenes of the newlyweds and soon, to his consternation, the hero finds the images splashed all over the Internet. But instead of regarding him as a victim, people accuse him of being involved in the smut trade.
The second, yet to be titled script, which he plans to shoot in Portugal or Spain, will revolve round a gangster, his girlfriend and a stranger who comes in between them, while the third, "Fana", is a love story that moves from Dubai to Venice following the Indian diaspora.
He is also tentatively planning a film, along the lines of "The Young Ones", in which he would narrate the tale of four youngsters - an Indian, a Pakistani, a Bangladeshi and a Nepalese - struggling to make ends meet in Bradford in Britain.
The tsunami, he says, has opened his eyes to the fact that the world is interlinked.
"There is a quake in Asia and it affects distant Seychelles," he says. "We are all connected. There might be local problems but we have to see ourselves as part of the whole."
As a step towards that, he says, he shot "Nazar", his thriller casting Pakistani actress Meera at a time when relations between India and Pakistan were far from cordial.
"I took a risk," he says. "And now it is being regarded as a positive step." Bhatt plans more India-Pakistan ventures once "Nazar" is released in February.
His vision sees a South Asian Union with the different film industries working together. It has brought him to Kathmandu to see if he can find his new leading lady there.
"I have always worked with new talent," says the man who introduced Sushmita Sen and Rahul Roy to Bollywood. "If I get the right face here, that will be part of a larger dream. Lack of budget doesn't mean lack of talent. A region becomes poor only when it stops dreaming."