Qateel was found strangulated in his cell in Yerawada Central Prison on Friday morning.
A complaint filed by the jail authorities named the two inmates, Sharad Mohol and Alok Bhalerao, as the culprits.
Arguing for the custody, Public prosecutor M G Pole said police have to find out the motive behind the killing and also probe involvement, if any, of more inmates in the crime.
While opposing the custody, defence counsel N D Pawar said there were many loopholes in the police version. "It has to be proved why other inmates took so long to inform jail authorities about the murder and there is no eyewitness to it. The duo is being falsely implicated in the case," he said.
On the mandate of Maharashtra Crime Investigation Department (CID) regarding the crime, Pawar said the initial investigations will have to be conducted by the local police and the court can decide on giving permission to CID after the police submitted the investigation report.
"At present, the CID will have to assist the city police in investigation," he argued. Maharashtra government had asked the CID to probe Siddiqui's murder. Mohol and Bhalerao are facing charges under MCOCA.
26-year-old Siddiqui, an alleged operative of Indian Mujahideen, was in judicial custody at Yerawada in a case filed by Maharashtra ATS in which he was accused of attempting to plant a bomb at the famous Dagdusheth Halwai Ganpati Temple in Pune in 2010. He had been named in other terror-related cases too.