A bench of Justices P Sathasivam and H L Dattu, forwarded the petition filed by the self-confessed "Gandhian" to the Attorney General G E Vahanvati for his consideration and report back to the court.
Appearing in person, Knaebel pleaded he should be granted political asylum in India as he fears persecution if he goes back to the US.
Knaebel had on June 19, 2009, created ripples by destroying his passport at the memorial of Mahatma Gandhi at Rajghat and condemned the "imperialistic" policies of the US government.
According to Knaebel, his act of destroying the passport would be considered as an act of "treason and sedition" by the US government which would prosecute him and hence sought asylum in India.
Though an American national, Knaebel has been in India since 1995 on an an extended visa crisscrossing the country and spreading the message of Mahatma Gandhi.
Speaking to reporters, Knaebel said he was deeply influenced by the teachings of Mahatma Gandhi, Gautama Buddha, Ramakrishna Paramhamsa and Swami Vivekanada.
"Only India must provide the moral leadership to the entire world riven with strife, violence and war," he said.
Knaebel claimed he became an ardent admirer of Gandhi and has been preaching his philosophy throughout the world as he was saddened by the loss of lives of thousands of people during wars.
"All the wars are lies. They are all rackets indulged in by corporate houses in which the innocent people lose their lives. Only India can provide the moral leadership to restore peace,"he added.
The war veteran turned Gandhian was the US navy commanding officer, heading the MCB-3 regiment for three years during the Vietnam war.
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