The state government last month cancelled the appointment of Nikam as prosecutor in the case based on his request, according to sources familiar with the development that has come to light only now.
A notification by Maharashtra's Law and Judiciary Department said it had withdrawn its order appointing Nikam as special public prosecutor, on his request, in the case pending before a Pune court.
Sheikh, 28, a software engineer, was attacked and killed on June 2, 2014 allegedly by HRS members in Hadapsar area.
He had also handled the 1993 Mumbai serial blasts case and last year examined Pakistani-American LeT operative David Headley in the 26/11 Mumbai terror attack case.
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The All India Majlis-e-Ittehadul Muslimeen (AIMIM) expressed shock over Nikam's move.
"Advocate Nikam has never done this before in any case, so what happened in this case that he sought to withdraw his appointment?" said AIMIM local leader Anjum Inamdar.
He asked Nikam to clarify what prompted him to withdraw from the case.
Sheikh's father Sadique Shaikh requested Nikam to reconsider his decision.
Sadique said they had personally requested then chief minister Prithviraj Chavan for Nikam's appointment. "Nikam's acceptance to their request was the first sign of justice," he said.
"There could be various reasons for the delay in trial but we do not blame Nikam for that. We request him to reconsider." he said.
Around 20 people, including HRS chief Dhananjay Desai, were arrested in connection with the case.
Desai had been charged under IPC Section 120B, which pertains to criminal conspiracy.
Police suspected that the incident was a fallout of violent protests in Pune over derogatory pictures of Maratha warrior king Chhatrapati Shivaji and the late Shiv Sena chief Bal Thackeray on a social networking site.