A High Court division bench, comprising Justice V M Sahai and Justice R P Dholaria, issued notices to the state government and posted the matter for further hearing on August 21.
Qavi, a Hyderabad-based cleric, had filed a bail application before the Gujarat High Court last month in the alleged 2003 Interservices Intelligence (ISI) conspiracy case after it was rejected by a special court under the Prevention of Terrorism Activities Act (POTA).
Qavi had sought regular bail from the court arguing that since the probe agency has filed its charge sheet in the case, there is no reason to keep him behind the bars.
He said the witness, who had named him in the alleged case of terrorism, later turned hostile before the court.
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Qavi, the founder of madrassa Jamia Ashraf-ul-Uloom in Hyderabad, was arrested from New Delhi airport on March 24.
Qavi had been named as a 'wanted' for the last 11 years under a case of Prevention of Terrorist Activities (POTA) Act which was repealed after UPA-I came to power in May, 2004.
It was also alleged that Qavi had sent several Muslim youth to Pakistan-based training camps run by LeT and Jaish- e-Mohammad to spread terror in India.