The 41 people were produced before the magistrate in the southern port town of Galle after the Australian authorities had handed them over under what was believed to be controversial circumstances.
The court ordered the release of 36 of them on bail and remanded the five suspected human smugglers.
"Five of them were human smugglers. They were ordered to be remanded while the others were released," police spokesman Ajith Rohana said, adding that among the five were the owner of the boat on which the asylum seekers had been travelling and its navigator.
The 36 who were bailed - all of them from the majority Sinhala community -- admitted that they were economic migrants, officials said.
The court appearance of the returnees came after UN refugee agency had expressed its deep concern over the Australian action to intercept them at sea and conducting shipboard processing of protection claims.
"Without further information UNHCR is not in a position to at this time to confirm whether they were in accordance with international law. UNHCR has previously made known its concerns to Australia about its enhanced screening procedures and their non compliance with international law," a statement said.
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