Jwala moved the high court challenging the life ban on her recommended by the disciplinary committee of the BAI.
Justice V.K. Jain told the BAI: "You must allow her to play."
The judge said he will pass a detailed order later in the day.
Jwala, a World Championship bronze medallist, moved the court saying the disciplinary committee's order was issued in "violation of settled principles of natural justice and fairness, without giving a hearing to her".
Senior advocate Shanti Bhushan, appearing for BAI, told the court that the decision taken by the association is right and Jwala has been playing below par for tehe last three years.
Gopal Jain, appearing for the 30-year-old Jwala, told the court that BAI has also stopped her from participating in national and international tournaments.
"The entire approach of the association was pre-determined and has been taken to single her out," the plea said. It also said that BAI has threatened her with a life ban without reason or justification.
The plea, filed against BAI and the sport ministry, sought quashing or setting aside of the order passed by BAI.
"Pass direction for ministry to seek an independent report of the incident and to put in place an independent regulatory mechanism to oversee the functioning of decision-making process of BAI in the absence of a proper procedure," the plea said.
The plea also sought quashing of the alleged independent panel appointed by BAI to look into the recommended life ban.
BAI's disciplinary committee recommended a life ban on Jwala, a Commonwealth Games gold medallist, for trying to stop her franchise Krrish Delhi Smashers from playing against Banga Beats in an Indian Badminton League (IBL) fixture in Bangalore Aug 25.
Delhi had threatened to pull out of the match over the last-minute replacement of injured singles player Hu Yun of Hong Kong with Denmark's Jan O Jorgensen - a higher-ranked shuttler.