Its 1947, not 48, and you cant really blame the British for stirring up religious hatred. The Indians where perfectly capable of doing that themselves.
Anyway, India is a democracy and no democracy can justify having such a law, no matter what the original intent of this legislation was.
The Hindu/Muslim bad blood is indigenous, but this isn't the first time the British fanned the flames in order to cling to power even while risking (and in this case failing) millions of deaths during partition.
And in addition, democracy is not an end in itself in any country in the world. It's merely a means to most effectively provide governance. Restricting speech which *genuinely* intends to foment hatred against a group is not the most unreasonable restriction in a democracy out there. In most of Europe, anything which might remotely be seen as neo-Nazi could earn serious jail time.
Finally, if the Catholic Church has such thin skins they can't tolerate being called out for a massive overreaction against a person who really isn't fomenting hatred against Catholics, then their religious feelings are perhaps too easily hurt to exist in a pluralistic society. One final thing, if there is evidence that the Vatican is directly interfering in this case, the Indian government should view this as interference by a foreign government in their internal affairs and act accordingly.