The 83-year-old director, known for Manipuri films such as "Olangthagee Wangmadasu", "Imagi Ningthem" and "Ishanou", was bestowed with the country's fourth highest civilian honour in 2006.
He said the plea of the Northeast people to not let the bill pass was not being heard by the Centre.
"The bill is against the interest of the Northeast and its people, especially in Manipur. All the leaders of the states in the Northeast have already requested the central government to reconsider (on the bill's passage).
"But yesterday when I was following the news, our honourable prime minister announced that the bill would be passed soon. He also requested the chief minister of West Bengal to help him pass the bill. That means the government, rather the BJP, is determined to pass this bill. They are not listening to us," Sharma told PTI.
Citing the example of Tripura, the filmmaker said history would repeat itself in Manipur if the bill is passed.
"We have already seen this in Tripura. Tripuris are having no say in Tripura... The population of Manipur is only 28-29 lakhs, which is less than the population of a district in Uttar Pradesh.
"The smaller states like Nagaland, Mizoram and Meghalaya have protection. Even then they are protesting because if the bill is passed the indigenous people will have no place. They will be wiped out. It may not happen now, but it will happen 50 years from today," he said.
Sharma said returning the award was the only way in which he could raise his voice against the bill.
"I'm not a politician. I'm not at all concerned with the politics. I'm just a filmmaker. I have seen a lot in life. But this is the worst. If the bill passes, there will be no place for us. This is against the Northeast.
"I can't do anything else. This is the only way in which I can protest... We feel neglected. Some kind of racial differences are happening... If not paid attention, the consequences will be severe. I'm worried about this," he said.
Addressing a rally in West Bengal on Saturday, Prime Minister Narendra Modi made a strong pitch for the Citizenship (Amendment) Bill, insisting it would bring "justice and respectability" to those who faced religious persecution.
"India got Independence after splitting it into pieces. People thought they can make a living in the country of their choice, but there they faced atrocities and torture because of communal malice... Hindus, Sikhs, Jains and Parsis.
"It was because of this that we brought the Citizenship Bill. These people have no place to go other than India. Should they not be given justice and respectability? I ask the TMC to support the Bill and facilitate its passage in Parliament," he said.
The Citizenship (Amendment) Bill seeks to grant nationality to religious minorities such as Hindus, Sikhs and Parsis from Afghanistan, Pakistan and Bangladesh after six years of stay in India, instead of the currently required 12 years.
Protests were witnessed in different parts of the country, particularly the Northeast, over the Bill which has been passed by Lok Sabha.