Carrying out a "fake" encounter was not an act committed in discharge of official duty, and to prosecute the police officials for it did not need government permission, it said.
Additional Solicitor General Anil Singh, who appeared for the CBI, argued against the discharge granted to Rajasthan Police constable Dalpat Singh Rathod by the trial court for want of prior sanction.
A prior sanction for prosecution of a public servant is needed only for an offence committed by him while discharging his official duty, Singh said.
The CBI's submission is significant as the high court, at a previous hearing, had asked whether the lack of sanction can be adequate ground for discharge of police officials.
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The high court is hearing a bunch of petitions filed by Shaikh's brother Rubabuddin Shaikh challenging the discharge of a few accused in the case by a special CBI court.
Rubabuddin Shaikh has challenged the discharge of Gujarat IPS officers D G Vanzara and Rajkumar Pandian and Rajasthan IPS officer Dinesh M N.
Vanzara and Pandian have now retired from service.
Justice Revati Mohite-Dere today started a day-to-day hearing on these applications.
ASG Singh said while Tulsiram Prajapati was killed by a team of Gujarat and Rajasthan police officers on December 28, 2006, the accused concocted a false story that he escaped from police custody while being brought back by a train to Udaipur from Ahmedabad after a case hearing.
Rathod's lawyer Niranjan Mundargi denied Singh's allegations. While other police officials accompanying Prajapati on the train might have had played a role in the encounter, Rathod had no role in the conspiracy, he said.
CBI's arguments will continue on Monday.
Sohrabuddin, a gangster with alleged terror links, and his wife Kausar Bi were allegedly abducted by the Gujarat Anti-Terrorism Squad in November 2005. Shaikh was killed in an alleged fake encounter on November 2005 while his wife disappeared.
Prajapati, an eyewitness to the encounter, was allegedly killed by police in another fake encounter in December 2006.