A division bench of Justices P V Hardas and A M Thipsay, while dismissing the state government's petition seeking cancellation of bail, said the police's allegations against Paulson were "far-fetched and unreasonable".
Paulson and seven others, all members of Chhota Rajan gang, were arrested following an attack on Kaskar's car in May of 2011. Assailants had opened fire upon the car, in which his driver Arif Abubakar Sayyed was killed.
"Such far-fetched connection of the alleged offences with the SIM card and consequently with the accused does not seem reasonable. SIM cards as such do not have direct nexus with the communication between two members of organised crime syndicate. The use of a particular SIM card... Is only incidental," the High Court said.
Terming the prosecution allegations as "absurd", the court said, "Even if it is assumed that the global SIM card provided by the accused was used to contact Chhota Rajan, it would be difficult to accept that the conspiracy to commit murder was hatched by using the said SIM card."
The lower court had granted Paulson bail in July of 2011, but he is still in jail in connection with the murder of journalist J Dey.