"It is really a big setback as with Lakhvi on bail prosecution witnesses will not like to come forward and give evidence," he said reacting to a Pakistani Anti-Terrorism Court granting bail to the LeT operations commander.
Lakhvi is among the seven Pakistani nationals accused of planning and abetting the brazen terror attack in Mumbai on November 26, 2008 that left 166 dead, including foreigners.
"The Pakistani authorities should move a higher court for cancellation of the bail because Hafiz Saeed (LeT founder) and Lakhvi are the real terrorists (behind the Mumbai attack)," he said.
Nikam, who had gone to Pakistan to monitor the progress of the trial in the 26/11 case, recalled a prosecutor in the case had been shot dead after his visit.
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Gunmen riding a motorcycle had shot dead senior prosecutor in the 26/11 and Benazir Bhutto assassination cases, Chaudhry Zulfizar Ali, in the busy commercial area of Karachi Company in Islamadad last year.
Rejecting claims by defence lawyers in Pakistan that there was no evidence of Lakhvi's involvement in the 26/11 carnage, Nikam said, "If they don't have evidence, why was he not released earlier? Government of India has provided enough evidence (to Pakistan).