The blast in the train was carried out on the eve of the Independence Day when it was on its way from Muzaffarpur to Ahmedabad and was close to Kanpur, claiming ten lives.
A bench of Chief Justice J S Khehar and Justice D Y Chandrachud observed that Wani has suffered incarceration for over 16 years and has been acquitted in nine out of 11 cases lodged against him.
"The trial court is directed to complete the exercise of examining the material witnesses by October 31, 2017. Whether the exercise is completed or not, the petitioner (Wani) shall be released on bail from November 1, 2017, on set terms and conditions of the trial court," the bench said.
The apex court noted that the co-accused of petitioner Wani have been released on bail in 2001.
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Wani, who was arrested by Delhi Police in 2001 with explosives and incriminating materials, is a resident of Peeparkari area of Srinagar and is currently lodged in Lucknow.
Son of retired government employee Ghulam Mohammad, Wani after completing his studies at Baramullah in Kashmir and come to Uttar Pradesh where he completed his graduation and post- graduation from AMU.
The Lucknow bench of Allahabad High Court on August 26, 2015 had denied bail to Wani saying "release of such persons would adversely affect the interest of the society".
Wani had challenged the High Court order before the apex court which had last year directed the trial court to expeditiously examine the material witnesses of the case in six months.