A bench of justices H L Dattu and C K Prasad passed the order noting that Jain did not want to pursue the case against Bhandarkar and the Mumbai police had earlier given a clean chit to the film director.
The bench set aside the order of the Bombay High Court which had confirmed the magisterial court's decision to continue with Bhandarkar's prosecution.
Bhandarkar had challenged the high court's order, which had asked him earlier this year to face the trial in the case.
The actress had lodged a complaint with the Versova police in July 2004 alleging that Bhandarkar had raped her 16 times between 1999 and 2004 on the pretext of casting her as actress in his films.
She alleged Bhandarkar promised to marry her and to cast her in his films, but he went back on his promises later.
A Mumbai trial court last year had found substance in Jain's complaint and had asked the national award-winning filmmaker to face the trial.
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Bhandarkar had challenged the lower court's order before the high court which too had rejected his plea.
In September 2011, the police had filed a report stating that the case against Bhandarkar was false.
The trial court, however, had rejected the police report which had said the case was 'maliciously false.' The court had held that there was prima facie case against Bhandarkar.