The Lucknow bench of the court also set aside the life term given to another accused Seema Azad, and reduced the sentence of Vijay Sen Yadav, driver of the former minister.
The judgement was passed by a bench of Justice Rajiv Sharma and Justice Devendra Kumar Arora in three separate appeals.
"Both the accused are entitled for the benefit of doubt. Accordingly, appeals of Seema Azad and Anand Sen Yadav are allowed and their conviction is set aside. They shall be released forthwith unless wanted in any other case. Sureties are discharged," the order said.
A Faizabad court had on May 17, 2011, sentenced to life imprisonment the then Bahujan Samaj Party MLA and former Minister Anand Sen, Seema Azad and Vijay Sen Yadav for murdering law student Shashi.
"Taking the holistic view and totality of the circumstances of the case we are of the decisive opinion that the trial court has erred in drawing the conclusion that all the three accused are involved in the alleged crime in the manner as alleged," the bench observed.
The court said that as per the observation appellants Sen and Azad were not held guilty of any offence as the prosecution has failed to prove their involvement in the alleged crime.
"The case is totally based on circumstantial evidence and it would not be safe to convict these two accused persons even under Section 120-B IPC in absence of clinching and tangible evidence to complete the chain of events as required under law," it said.
The bench observed that the prosecution had failed to establish the guilt of the accused Sen and Azad "beyond all shadow of doubts".
The sentence of the driver, Vijay Sen, was reduced to 10 years.
The bench said that the trial court had rightly held Vijay guilty under Section 364 read with Section 201 IPC and 3 (2) (V) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989.
"...But we are unable to accept his conviction under Section 302 IPC in view of the legal position. Therefore, his conviction under Section 302 IPC, for the reasons aforesaid, is set aside," it added.
The bench sentenced him to 10 years rigorous imprisonment under section 364 of IPC (abducting in order to murder) with a fine of Rs 10,000.
The court awarded him two years rigorous imprisonment under section 201 (causing disappearance of evidence of offence) with a fine of Rs 2,000 and 10 years and fine of Rs 5,000 under SC/ST Act.
24-year-old Shashi was abducted on Oct 22, 2007, while she was returning from college in Faizabad.
According to the probe, she was last seen in the Sen's car with the driver Vijay Sen. About two weeks later, her body was found floating in the Gomati river in Sultanpur.
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