FWP:

SETS
MOTIFS == CLOTHING/NAKEDNESS; ISLAMIC; WINE-HOUSE
NAMES == SHAIKH
TERMS == INSHA'IYAH

[This verse does not appear in SSA.]

No doubt we're meant to imagine the Shaikh in his underwear, surely wearing at least a modest loincloth, rather than stark naked. It's shameful enough, disgraceful enough (as the overtones of the word nangā remind us; see the definition above) that he's devoid of all his appropriately modest outer garments. People are naturally pointing at him, and gossiping.

But isn't there perhaps even an undertone of admiration? 'He did that? Why, that old so-and-so! Who would have thought that dried-up old stick had it in him?!' Because he hasn't done anything unromantic like sell his clothes, or vomit on them, or get so drunk that he loses them somewhere. Rather, he's given them away, he's given them as a 'reward' or a 'gift'. Since he was in the wine-house, and was intoxicated, probably he's bestowed them on the beautiful Cupbearer or the wine-serving boys [muġh-bachche], in recognition of their charms. Here's an example, also from the first divan, of how, on another evening, the Shaikh was affected [{12,3}]:

the bure muġh-bachchoñ ke tevar lek
shaiḳh mai-ḳhāne se bhulā khiskā

[the brows/expressions of the 'Mughal boys' were bad, but
the Shaikh wandered out of the wine-house in a daze]

There's a degree of grandiloquence in the Shaikh's gift-giving, no doubt, but also a hint of possible real grandeur-- a self-sacrificing, damn-the-cost gesture carried off with a flourish. Aren't we now in the world of Hatim Ta'i, who slaughtered his favorite superb racing-camel because he needed to provide a meal for unexpected guests? And of course, the 'wine' can always evoke the Sufistic 'intoxication' of the presence of the Divine beloved, so the Shaikh can look like a kind of mystically transported darvesh.

Or, of course, it's also possible that he could simply have made an awful fool of himself, and might be feeling thoroughly chastened and embarrassed. Everybody might be snickering at his folly. But then, aren't mystics and mad lovers fools by definition?) And isn't it to the Shaikh's credit if he joins (even briefly) their ranks?

An alternative reading, proposed by Mushtaq Fadra (Jan. 2016) and others, would be to take nangā as a 'midpoints' word, and to read it not with the clause before it, but with the clause after it. Thus we'd have 'the Shaikh who is in the mosque, was naked last night in the wine-house'. I agree that this is a perfectly possible reading. For several reasons, however, I think it remains secondary. First, in 'Hindi meter' the quasi-caesura after the eighth syllable almost (though not quite) always corresponds to the locally dominant semantic division, if one exists, or in its absence to a significant grammatical break. In the thirty lines of this fifteen-verse ghazal, there's only one exception (in 11b). If we take the usual reading of the first line of the present verse, the semantic break corresponds perfectly to the quasi-caesura, just as it does in the second line; if we take the alternative reading, it conspicuously does not, so that the line feels much clunkier, and the word-order more peculiar. Second, the usual reading is more overtly scandalous and thus offers a more piquant and enjoyable effect. Compare

{7,5},

with its sacrilegious use of Islamic religious imagery, and of course the closing-verse,

{7,15}.

And third, on the alternative reading 'who is in the the mosque' becomes something almost like padding (though not quite, since it does serve to emphasize the contrast)-- because it's normal to see the Shaikh in the mosque, and there's no need to make clear which Shaikh, since in the ghazal world this figure is a single archetype.