District Judge Nicholad Evans at Westminster Magistrates Court in London said in his ruling on Wednesday that he had been presented with no evidence to prove that there wasn't a "case to answer".
The case will now be sent to the UK home secretary, Theresa May, who will decide on ordering Shankaran's extradition to India.
Shankaran, 46, a retired naval commander and relative of former Navy Chief Admiral Arun Prakash, is a key accused in the case of leaking classified information from the War Room to arms dealers.
He has been absconding since the case was registered by the Central Bureau of Investigation (CBI) in March 2006.
The CBI revoked his passport in May that year and secured a Red Corner Notice against him after filing a charge-sheet in July 2006.
An extradition request was sent to the UK in 2007 following reports that he was in the country and he was arrested by British authorities in April 2010 on the basis of the non-bailable arrest warrants issued by the court of chief metropolitan magistrate, New Delhi.
The 2006 Navy War Room leak case involves leaking of over 7,000 pages of defence information of sensitive nature from the naval war room and air defence headquarters.
Besides Shankaran, other accused in the case are include sacked naval commander V K Jha, former Indian Air Force wing commander S L Surve and businessmen Abhishek Verma.
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