Azharuddin, now 43, was among 16 Indian captains honoured by the Board of Control for Cricket in India (BCCI) on Saturday night during a function to inaugurate its new headquarters at the Wankhede stadium.
Some 15,000 guests, who included the top brass of the International Cricket Council, warmly applauded Azharuddin as he went up on stage to shake hands with BCCI president Sharad Pawar.
"I am deeply humbled by the honour bestowed on me," Azharuddin later told reporters. "It makes me a very happy man."
Newspapers on Sunday flashed photos of a beaming Azharuddin being hugged by current superstar Sachin Tendulkar.
The ceremony came on the day the ICC lifted a life ban on former Pakistani fast bowler Ata-ur-Rehman for his involvement in match-fixing in the sordid scandal that hit cricket in the 1990s.
Azharuddin was banned from the game for life by the BCCI in 2000 after a federal inquiry found him guilty of hobnobbing with illegal bookmakers to fix matches.
Azharuddin denied the charges and is awaiting judgement on a suit he filed in a court in his home city of Hyderabad challenging the life ban.
The BCCI has publicly stated that Azharuddin, who led India in three World Cups between 1992 and 1999, had been punished enough and deserved to be pardoned.
The ICC, which professes a policy of "zero tolerance" towards corruption in the sport, had earlier debated whether to attend the ceremony but later accepted the BCCI's invitation.
"Azharuddin has been banned from cricket, not from leading a life. It is great the BCCI has honoured him for his services to the game," ICC president Percy Sonn said.
Azharuddin played the last of his 99 Tests against South Africa in Bangalore in 2000. He scored 6,215 Test runs with 22 centuries and 9,378 runs in 334 one-dayers.
The ban on Azharuddin is for all cricket-related activities, including playing official cricket, coaching, assuming an administrative role or doing media work.
In 2005, the ICC forced Sri Lanka to revoke Azharuddin's media accreditation for a limited-overs tri-series in the island, saying he would not be allowed to cover international cricket.
While pardoning Pakistan's Rehman on Saturday, the ICC insisted any player who wanted his ban lifted had to submit an application to the sport's world governing body.
"The ICC is keen to stress that this decision does not represent a precedent in respect of other banned players and any subsequent applications for reinstatement would be considered on their individual merits," the ICC said in a statement."
The BCCI could now move the ICC to have Azharuddin's ban lifted.