In a stunning verdict in Vancouver which reduced some relatives of victims in the court to tears, Justice Ian Bruce Josephson on Wednesday threw out eight counts of murder and conspiracy against Ajaib Singh Bagri and Ripudaman Singh Malik.
The judgements came after a 20-year investigation, and a 19-month trial into the world's worst airborne terror strike prior to the attacks of 11 September 2001.
"The crown has not proven its case against him beyond a reasonable doubt," Josephson said as he acquitted Malik, a prominent member of western Canada's Sikh community.
As he delivered his judgement against Bagri, Josephson said: "The evidence has fallen remarkably short ... . I find the Crown has not proved his guilt beyond a reasonable doubt."
Malik and Bagri, orthodox Sikhs who immigrated to Canada from Punjab, were accused of conspiring to plant suitcase bombs on two aircraft.
Prosecutors claimed the Sikh group built suitcase bombs on Vancouver Island, bought airplane tickets, then planted the explosives on two flights from Vancouver that connected with Air-India planes.
One bomb exploded in the hold of Air-India Flight 182 over the Atlantic Ocean off the coast of Ireland on 23 June 1985. All 329 people aboard the Jumbo jet died.
"The evidence has fallen remarkably short ... . I find the Crown has not proved his guilt beyond a reasonable doubt"
Justice Ian Bruce Josephson
Just 54 minutes earlier, the other bomb had exploded at Japan's Narita airport, killing two baggage handlers transferring suitcases to Air-India Flight 201.
Both Malik and Bagri were also acquitted of involvement in that blast.
A third man, Inderjit Singh Reyat, was convicted in the Narita explosion and sentenced to 10 years, before he was charged with the bomb on Flight 182.
In 2003, just before the trial was to begin, Reyat pleaded guilty to manslaughter, and is serving a five-year sentence.
Another immigrant to Canada, Tarwinder Singh Parma, was the alleged mastermind of the plot and died in a 1992 police shootout in India.
During the 19-month trial, which Josephson heard without a jury, prosecutors contended that Malik, a millionaire Vancouver businessman, and Bagri, a rural millworker, were part of a radical Sikh group based on Canada's west coast.
Its mission was to punish India for its crackdown on Sikhs in the early 1980s and the army's attack on the Sikh Golden Temple at Amritsar, prosecutor Robert Wright told the court.