Mere shifting of such persons to different NGOs or shelter homes was not proper, said a bench of Justices D Y Chandrachud and Aniruddha Bose.
The top court gave three months to the Centre to submit a plan about such possibilities and compliance of its 2017 verdict which asked all the states and Union Territories to rehabilitate those who have recovered from mental illness but are staying in the hospitals.
The top court also asked the Centre to place before it a survey report with regard to persons, who have recovered from mental illness but are staying in the 43 mental hospitals across the country.
On May 10, the top court had asked the states and UTs to provide data of such people languishing in hospitals.
It had asked the chief secretaries of Arunachal Pradesh, Jammu and Kashmir, Nagaland and Telangana to furnish all the relevant details to the Ministry of Social Justice and Empowerment for formulation of a proper roadmap.
Petitioner advocate Gaurav Kumar Bansal had earlier argued that there was non-compliance of orders of the court and some states have not provided the necessary data to the Centre.
The apex court had on February 25 directed chief secretaries of all the states and Union Territories to hold a meeting in four weeks with the Union health secretary to chalk out a roadmap for setting up rehabilitation homes for people who have recovered from mental illness and were fit to go home but are languishing in hospitals.
It had directed the Union Ministry of Health and Family Welfare to appoint a nodal officer to conduct the meeting.
It had said that the data provided by the states must include a roadmap regarding setting up of rehabilitation homes and based on it the Union ministry will prepare a report to be submitted in the apex court.
Bansal in his plea has said that around 10,000 people, who are fit to be discharged, are forced to live in different mental hospitals and institutes due to social stigma.
On October 3 last year, the apex court had sought reports from all the states and UTs on the status of setting up rehabilitation homes for people with mental illness.
It had taken on record the guidelines for the state governments for setting up rehabilitation homes for persons living with mental illness framed by the Department of Empowerment of Persons with Disabilities of the Union Ministry of Social Justice and Empowerment.
The apex court had asked the Union ministry to circulate the guidelines to all the state governments and UTs with a direction to implement them within one year.
It had also directed the state governments to comply with the provisions of the Rights of Persons with Disabilities Act, 2016.
Earlier, the apex court had favoured framing of a uniform national policy to deal with those suffering from mental illness and their release from hospitals after being cured.
It had said that the issue concerned figured in the concurrent list of the Constitution and hence the Centre also has the authority to frame norms.
The PIL filed by Bansal has raised the issue of release of about 300 people from various mental hospitals in Uttar Pradesh, alleging they were still languishing there despite being cured of their ailments and most of them belonged to poorer sections. PTI MNL ABA SA