Systems engineer Mr Bunglawala, a spokesman for the Muslim Council of Britain, was appointed in 2005 as one of seven conveners for a Home Office taskforce to combat extremism in young Muslims.
Mr Bunglawala's solicitor, Stevie Loughrey, told Mr Justice Eady his client had not committed any criminal act in relation to the alleged stabbing in December 2008.
He had acted in self-defence to protect himself and his family against an intruder, who it had later turned out had been so drunk he had had no recollection of the incident, the court heard.
Mr Loughrey added his client did not support or condone the views or objectives of Abu Qatada or al-Qaeda, and had gone on the record many times to criticise and condemn the terror network.
The Crown Prosecution Service has not taken any action over the claims.
Mr Loughrey told the court Associated Newspapers, which owns the Mail on Sunday, admitted the allegations were false, had apologised and would pay substantial damages and costs.
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