The SIT, headed by former CBI director R K Raghvan, will now further investigate the encounter case of 19-year-old Ishrat Jahan and three others.
A division bench of Justices Jayant Patel and Abhilasha Kumari observed that there is no material on record to conclude that the encounter was with mala fide intentions and, therefore, the plea for a CBI inquiry by the mother of the girl was not granted.
However, the probe done by the previous police officers was found to be not satisfactory and hence the genuineness of the encounter deserves further investigation, the court said.
The case has been transferred to the SIT to instill confidence and credibility in the investigations, the court further said.
The court has directed the state government to issue the necessary orders within two weeks to transfer the case to the SIT.
The court has also told the SIT to submit its report within three months after it begins its investigations.
Mumbai-based Ishrat Jahan was killed in an encounter along with Javed Ghulam Sheikh alias Pranesh Kumar Pillai, Amjad Ali alias Rajkumar Akbar Ali Rana, and Jisan Johar Abdul Gani by crime branch officials near Ahmedabad on June 15, 2004.
The court also said Judicial Magistrate S P Tamang's report has a recommendatory value.
Tamang had, on September 7, 2009, held that the encounter was "fake" and that it was executed in cold blood by police officials for their personal benefit.
Shamina Kausar, Ishrat's mother, had approached the court asking for a CBI inquiry into the case.
Gopinath Pillai, father of Javed Ghulam Sheikh alias Pranesh Kumar Pillai who was killed in the encounter along with Ishrat, had also sought a CBI inquiry into the killing of his son.
The Gujarat police at the time of encounter claimed that Ishrat Jahan and three others were Lashkar e Tayiba operatives on a mission to kill Chief Minister Narendra Modi.
According to the police, the encounter was carried out based on specific inputs from central intelligence that the LeT was planning to carry out attacks on various parts of India, including Gujarat.
The Centre, in an affidavit filed in the apex court, had stated that Javed was in regular touch with LeT operatives to carry out terrorist attacks in Gujarat.