The court, however, rejected the bail plea of co-accused Prasad Purohit, a former army lieutenant colonel, saying the charges against him are of "serious and grave" nature.
Six persons were killed and nearly 100 others injured when a bomb strapped to a motorcycle had exploded in Malegaon town of Nashik district, about 270 km from here, on September 29, 2008.
Sadhvi Pragya, 44 , was arrested in October that year and Purohit, 44 , the next month and both were charged with plotting the blasts as part of what the prosecution said a plan by Hindu right wing group Abhinav Bharat. They are in jail since their arrests. Nine others were also arrested and are behind bars.
"Prima facie there is no case made out against Sadhvi. But there are reasonable grounds for believing that the accusations made against Purohit are prima facie true," a division bench of Justices Ranjit More and Shalini Phansalkar-Joshi said.
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The court also asked Sadhvi Pragya to furnish a cash surety of Rs five lakh and surrender her passport to the National Investigation Agency (NIA).
It also directed her not to tamper with the evidence and to report to the NIA court as and when required.
The NIA, which took over the probe from the ATS, had given a clean chit to Sadhvi Pragya and told the high court that it had no objection if she was released on bail.
The agency had, however, opposed Purohit's bail plea.
"In our considered opinion, if both the reports of ATS and NIA are considered conjointly, so far as Sadhvi is concerned, it cannot be said that there are reasonable grounds for believing that accusations made against her are prima facie true," the judges observed.
The court, in its 78-page order on Sadhvi's plea, said the accused is a woman who is languishing in jail since 2008 and is suffering from cancer.
While rejecting Purohit's plea, the court said, "In our considered opinion, there is, prima facie, more than sufficient material on record against Purohit so as to hold that there are reasonable grounds for believing that accusations made against him are prima facie true."
"It is of waging war against the integrity and unity of the state and, that too, by violent means like exploding the bomb, so as to create terror in the minds of the people," the judges said.
Referring to the report (charge sheet) filed by the NIA, they said, "Purohit was the one who prepared a separate 'Constitution' for 'Hindu Rashtra' with a separate saffron colour flag. He also discussed about taking revenge for the atrocities committed by the Muslims on Hindus."
The high court refused to accept Purohit's contention that he had attended the meetings as part of a "covert military intelligence operation."
"If Purohit's contention that he used to attend the meetings merely as a part of his duty while working as a 'Military Intelligence Officer' is to be accepted then there was no reason for him to express such views to the witness," the judges said in their 118-page order on Purohit's plea.
On Sadhvi's plea, the HC noted that several witnesses, who had initially told the ATS that they attended the meetings in Bhopal where the blast conspiracy was hatched by Purohit and Sadhvi, later retracted their statements.
"Two witnesses, who have not yet retracted their statements recorded by the ATS, do not disclose any objectionable and incriminating material against the appellant (Sadhvi)," the judges said.
The court further held that although the motorcycle, which was used in the blast, was registered in Sadhvi's name, the same was in possession of absconding accused Ramji Kalsangra since two years prior to the blast.
Bhagwan Jha said the Sadhvi was in jail for nine years without evidence.
"Finally, we have won. Nine years she was in jail without evidence. Now we will celebrate nationwide," he told reporters outside the court.
"The second allegation was that she was part of two meetings in Bhopal and Faridabad. In the Faridabad meeting, the entire conspiracy of Malegaon blast was planned. However there was no evidence of her participating in the meeting, and there was no such conspiracy in the Bhopal meeting. Barring that there was nothing absolutely against her."
Sadhvi Pragya and Purohit had filed appeals in the HC against an earlier order of a special court rejecting their bail pleas.
The high court, however, refused to stay its order.
According to the investigating agencies, the blast was allegedly carried out by right-wing group Abhinav Bharat.
In her appeal, Sadhvi Pragya argued that the lower court failed to take cognisance of the change in circumstances in her case considering that NIA had declared in its charge sheet that it had not found any evidence against her and that prosecution against her be dropped.
According to NIA, Purohit had allegedly taken active part in the conspiracy meetings and even agreed to arrange explosives to be used in the blast.
Purohit had argued that the NIA was "selective" in exonerating some accused persons and that the agency made him a "scapegoat" in the case.