The court has also directed the government to expunge the passport entry where it has been stamped as "offload".
The court told the government that democracy cannot be muzzled in a democracy and that citizens can have different opinions of development policies.
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Ms Pillai, who was offloaded from the aircraft by immigration officials on January 11, was scheduled to visit London to make a presentation before British MPs regarding alleged human rights violation at Mahan in Madhya Pradesh where a proposed coal mining project was threatening to uproot the lives of the local communities.
Ms Pillai said her offloading was "illegal and arbitrary" and she had a valid business visa for six months to visit London where she was scheduled to address British parliamentarians on January 14.
Her name will now also be removed from any government database that prevents her from travelling abroad.