The students from an agriculture university were detained in Jammu and Kashmir (J&K) after one student filed a complaint accusing them of using anti-India slogans and cheering for Pakistan along with Australia after the match.
Claimed in full but ruled in part by India and Pakistan, Muslim-majority Kashmir has seen a bloody insurrection against New Delhi for decades. Muslims in the region have in the past cheered for the competing side in India cricket matches as a way of protesting Indian rule.
Local political leaders opposed to Prime Minister Narendra Modi government's rule over J&K had said the arrests were a way to intimidate locals using the stringent Unlawful Activities Prevention Act (UAPA). The act deals with inciting any unlawful activity and is punishable with seven years' imprisonment.
Police dropped the UAPA charges and an Indian court granted bail to the students on Saturday, according to the lawyer of students, Shafiq Bhat, and a court order seen by Reuters.
In granting bail, the local court imposed a condition that the students should be available when needed for the investigation and "shall not indulge in any anti national activity," the order stated.
The students still face allegations under other Indian laws that related to making statements inducing public mischief.
Australia had entered the World Cup match as clear underdogs against an all-conquering India side, who had won 10 matches in a row to storm into the final. But India was defeated in the final match on Nov. 19.
India blames Pakistan for supporting the Muslim insurgents. Pakistan denies this and accuses India of violating the rights of Kashmir's Muslim people, a charge India rejects.
(Writing by Aditya Kalra; Editing by Lincoln Feast)
By Fayaz Bukhari