The Delhi High Court has dismissed a criminal case against Yahoo India which was accused of hosting “objectionable” content on its web pages.
Yahoo was among 21 web firms, including Facebook and Google, accused of hosting material that could cause communal unrest.
Yahoo says there is no document to show that its website has violated any law.
The case was launched by journalist Vinay Rai. A separate civil lawsuit against the internet firms continues.
Judges in India have threatened to block sites that fail to crack down on offensive content.
Last month, Facebook and Google said they had complied with the court directive and removed “objectionable” material.
Late last year, Communications Minister Kapil Sibal met officials from Google, Facebook and other websites and said the government would introduce guidelines to ensure “blasphemous material” did not appear on the internet.
The Delhi High Court in January asked Facebook and Google India to “develop a mechanism to keep a check and remove offensive and objectionable material from their web pages” or “like China, we will block all such websites”.