The additional sessions judge in West Midnapore district dropped the sedition charge against Mahato for lack of evidence.
Mahato will continue to remain in prison in 31 other cases against him.
Mahato had founded the PCPA after alleged police atrocities following the November 2, 2008 bomb blast targeting the convoy of former West Bengal chief minister Buddhadeb Bhattacharjee's when he was returning from Salboni in the district.
Mahato was arrested after he gave an interview to police posing as journalists on September 26, 2009.
The Calcutta High Court had declared him a political prisoner last year.
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