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Decks cleared for release of Once Upon a Time in Mumbai
PTI
Mumbai, Jul 29 (PTI) The decks have been cleared for the release of 'Once Upon a Time in Mumbai' on Friday, after a Sessions Court today dismissed a suit filed by the daughter of alleged late smuggler Haji Mastan, claiming that the movie showed her father in a bad light. According to Mastan's daughter Shamshad Supariwala, the movie is based on the life of her father and shows him as having connections with underworld don Dawood Ibrahim. "My father was a social leader and commanded respect in the society. How could he be shown as having connections with anti-social elements," Shamshad had observed in her suit. The Court,however, dismissed the suit after Balaji Telefilms, the producers of the movie agreed to exhibit a disclaimer before the movie stating that it is a work of fiction and not based on the life of Haji Mastan. The Bombay High Court had yesterday refused to stay the release of the movie, as sought by Mastan's adopted son Sunder Shaikh in a separate petition filed by him seeking a stay on the release of the movie on the same grounds as Shamshad. Directed by Milan Luthria, the movie stars Ajay Devgn, Emraan Hashmi, Kangana Ranaut and Prachi Desai.

Please explain to me what "decks cleared" and "had observed" means here.
Source : http://ibnlive.in.com/generalnewsfeed/news/decks-cleared-for-release-of-once-upon-a-time-in-mumba...
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"Clear the decks" is a nautical expression. When some major action is anticipated, all unnecessary obstacles should be removed from the decks of the ship, so the personnel will be free to deal effectively with the action. (Maybe some planes are about to land on an aircraft carrier.)

This is a popular expression. You even find it in songs. It means, "Get ready! Something big is gonna happen!"

To make an observation in this sense is to say something, or write something.

I observed in my letter that you had better shape up. (That's what I wrote.)

Shamshad had observed in her suit

She wrote, or claimed, in her lawsuit, that her father was etc.

The use of the past perfect tense means that
she did this before some other thing referred to in your excerpt.

Edit. Wordy's right. This refers to a specific action in which the court dismissed Shamshad's lawsuit, clearing away an obstacle to the release of the film.
The past perfect places her claim prior to this dismissal.

To me, the expression (the deck has been cleared) is appropriate, because the deck/stage is now set for the big event of the release of the film.
Comments  
"clearing the decks" usually means dealing with and clearing away all outstanding items (either physical items or items of work or business). Here it seems to refer to the removal of obstacles that had been preventing the film's release. For this meaning I would use "clearing the way". I'm not sure if this is a valid use of "clearing the decks" in a sense that I'm unfamiliar with, or if the author has confused the two idioms.

"had observed" is just the past perfect tense of the verb "observe".
 Avangi's reply was promoted to an answer.