Sharma was arrested for having shared a meme which had a morphed image of Banerjee's face on Priyanka Chopra's look at the recent Met Gala.
The Supreme Court on Wednesday termed the arrest of Sharma "prima facie arbitrary" and pulled up the West Bengal government for the delay in releasing Sharma.
The apex court's observation came after counsel for Sharma's brother mentioned the matter before it and said that despite the court's order on Tuesday the activist has not been released from jail.
The court also issued a notice to West Bengal police over the way the West Bengal BJP youth wing functionary was taken into custody.
SC to hear on Tuesday BJP activist's plea against arrest for sharing morphed photo of Mamata Banerjee
A vacation bench, comprising justices Indira Banerjee and Sanjiv Khanna, on Monday took note of the plea of advocate N K Kaul, representing the activist, that the issue be accorded urgent hearing.