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Dr Khan had been suspended along with seven others in August 2017 when over 60 children died due to disruption in oxygen supply at the BRD hospital.
The bench was hearing the Uttar Pradesh government's plea challenging the high court's September 1 verdict.
The Allahabad High Court on Tuesday quashed Khan's detention under the National Security Act and ordered his immediate release.
Khan has been in jail since January after he delivered the allegedly provocative speech at the Aligarh Muslim University (AMU) during the anti-Citizenship (Amendment) Act (CAA) protests in December last year. He is lodged in Mathura jail.
Khan is presently lodged in Mathura jail despite being granted bail in connection with a speech against the Citizenship (Amendment) Act at the AMU last December.
The Hospital Development Society has passed a resolution to inquire about the 'anti-national' activities on the Kozhikode Medical College campus.
Kafeel's brother Adeel Khan said he was arrested just before he was going to address media on deaths due to acute encephalitis syndrome in the state.
He said he would organise a Sradhanjali, a protest in which the parent of the victims would also take part, to mark the first anniversary of the tragedy.
The doctor said the state had played spoilsport with his career just because he stood for justice. He was yet to be relieved of his duties at the BRD Hospital.
The two have been booked for allegedly opening a bank account using fake documents.