Justice Roshan Dalvi granted the clearance in response to an application filed by the Indian Navy seeking permission to destroy the warship.
The application was filed sometime after the warship, INS Vindhyagiri, and a Cyprus-flagged vessel MV Nordlake had collided in the Mumbai Harbour on Jan 30, 2011.
The foreign vessel was sailing out of the main navigation channel of the Jawaharlal Nehru Port Trust when it collided with the warship.
The warship, which sustained extensive damage, had partially sunk and was later salvaged by the navy. Since then, it remained grounded as the navy filed a case in the high court seeking damages from the owners of the foreign vessel.
In its application, the navy pointed out that the dockyard in which INS Vindhyagiri is grounded is in a high traffic area with heavy movement of merchant and defence vessels.
Hence, it contended it would be potentially dangerous to continue keeping the grounded warship there with all the ammunition aboard it.
The navy added that since it would be difficult and risky to retrieve the ammunition without chances of an explosion, it would be in the national interest to safely dispose it off in the manner that it decommissions and destroys old ships.
With the green signal from the court, the official said that the Indian Navy would initiate necessary process to decommission and destroy the warship.