A division bench of judicial members, M Nagarajan and E K Bharat Bhushan, quashed the order.
Yadav was suspended from the post of Superintendent of Police (SP) Gandhinagar, in 2000, following a departmental inquiry after government alleged lapses on his part in investigating a case of kidnapping of a girl in April 1999.
The CAT quashed the government's year 2000 order suspending him, thereby allowing him to get financial and consequential benefits denied to him due to suspension.
The inquiry was not satisfactory and documents presented against him do not stand proved, it said.
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The CAT said in its order that the state government can still continue to act "as deemed fit in pursuance of the charge sheet filed (against him)," but directed the government to complete all proceedings against him within six months.
Yadav was also dismissed in 2006 for failing to join as the vice-principal of Junagadh Police Training College, which was quashed by the CAT in New Delhi in 2010 paving the way for his reinstatement in the same year.