Former 'encounter specialist' police officer Pradeep Sharma was acquitted in the case last year.
The principal judge of the Sessions and City Civil Court Sangitrao Patil passed the order of compulsory retirement against Geetanjali Datar last week following a departmental inquiry.
Datar, according to the prosecution, had received calls from Sharma on the day of the encounter.
However, during the trial she refused to identify the particular telephone number. The special prosecutor Vidya Kasle then proceeded to declare her a hostile witness.
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The High court had directed the Principal Judge to conduct an inquiry.
Last July, the sessions court had convicted 21 persons, many of them policemen, in the Ram Narayan Gupta encounter case. But Sharma was acquitted.
On November 11, 2006, a police team picked up Ram Narayan Gupta, alias Lakkhan Bhaiya, from neighbouring Vashi on the suspicion that he was a member of Chhota Rajan gang. According to the prosecution, he was killed in a fake encounter in suburban Versova on the same evening.