The director had moved court, challenging the ministry's decision to exclude his film from the Indian Panorama 2017 line-up.
The ministry had overruled the jury's decision and excluded "S Durga" and Ravi Jadhav's "Nude" from the list, leading to controversy and resignations of jury chairman Sujoy Ghosh and members Apurva Asrani and Gyan Correa.
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For the director, who is in Australia for Asia Pacific Screen Awards where he is nominated in the best director category for "S Durga", the decision could not have come at a better time.
"This is a victory of all of us. It is a proof that democracy can't be killed and the law is for the people," Sanal added.
Asrani said he was looking forward to attending the festival after the court's decision.
"Fantastic! The court has directed IFFI to screen #SexyDurga on the day #IndianPanorama is inaugurated.
"This is a huge victory for @sanalsasidharan and restores my faith in our democracy. I now look forward to attending the festival to watch the film!" he wrote on Twitter.
Jury member Ruchi Narain also expressed happiness over the outcome.
"The judiciary metes out justice. The IFFI festival audience will get to see an amazing set of films," Narain told PTI.
Director Rahul Rawail, who replaced Ghosh as the Indian Panorama jury chairman, however, refrained from commenting on the development.
"This matter is sub judice and until the ministry orders, I can't say much on this. I have not received any order about the screening from the ministry yet," he told PTI.
Nishikant Kamat, another jury member of Panorama, said, "We should respect the decision of the judiciary. Obviously, there was a great disappointment when our decision was not considered. It was a well-thought-of decision to have the film in the Panorama section."
Six of the jury members, including Narain, had also written a letter to I & B minister Smriti Irani on Sunday, to express their concern.
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