Shah was arrested by the CBI on Jul 25, and had challenged the rejection of his bail plea by a Central Bureau of Investigation (CBI) court last month.
In his petition before the court, Shah had alleged that the CBI had framed him and there was no evidence to charge him in the case.
Sources say apart from Shah, more than a dozen policemen are in jail in connection with the fake encounter case.
Sohrabuddin, an alleged gangster, was killed on the city's outskirts in Nov 2005 in a staged shoot out by Gujarat and Rajasthan Police. Later, his wife Kauser Bi was also murdered.