A bench of Justices V Gopala Gowda and C Nagappan also issued notice to the state government while granting relief to Sharma, who had reportedly been at loggerheads with Narendra Modi during his tenure as the Chief Minister.
"Issue notice. The further proceedings before the trial court shall remain stayed," it said.
The bench sought explanation from the state government for delayed grant of sanction to prosecute Sharma.
The court's order came on a plea filed by Sharma challenging Gujarat government's February 29, 2012 decision to permit his prosecute in the assault case.
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The duo had moved the apex court after the Gujarat High Court on April 30 dismissed their plea to quash the criminal case against them in a Bhuj court for allegedly beating the Kutch-based alleged smuggler.
Senior Advocate Kapil Sibal, appearing for Sharma, argued that his client was being targeted for standing against the then Chief Minister. "They tried every trick to ensure that he (Sharma) goes to jail," he said.
"In fact the Public Prosecutor in the case itself moved an application urging the trial court to dismiss the criminal complaint in 1987," Sibal said.