Shankaran had challenged the Home Secretary's order in the High Court.
The court heard the case for two days in February this year and gave its ruling yesterday.
Shankaran is the 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 UK authorities in April 2010 on the basis of the non-bailable arrest warrants issued by the Court of Chief Metropolitan Magistrate, New Delhi.
Besides Shankaran, who is out on conditional bail, other accused in the case include sacked naval commander V K Jha, former Indian Air Force wing commander S L Surve and businessmen Abhishek Verma.
The case involves leakage of over 7,000 pages of defence information of sensitive nature from the naval war room and air defence headquarters.
