The Supreme Court verdict is a victory for the environment over corruption in the mining industry, said Greenpeace India, urging Prime Minister Narendra Modi's government to reverse "its excessive reliance on coal power as the engine of economic growth".
"It's a strong message from the highest court in the country to the government and industry that the laws of the land cannot be circumvented and disregarded," said Vinuta Gopal, Greenpeace India's Climate and Energy campaigner.
"The government has a stark choice - whether to develop a pro-people, pro-green economic model, or stick with corrupt, expensive, dirty energy," she added in a statement late on Wednesday.
India is desperate for power, and coal is expected to remain at the heart of its energy security for decades. Coal fuels more than two-thirds of the power generated in India, yet a third of the country's 1.2 billion people have no access to electricity.
While the government and corporations are investing in cleaner energies such as solar and wind, analysts say it is nowhere near enough to power India's industrial growth.
The graft scandal dubbed "Coalgate" came to light in 2012, after a government audit showed that allocating the resources, instead of auctioning them off, had cost the exchequer as much as $33 billion over the past two decades.
Power, steel and cement companies who were allocated blocks must now return them by the end of March, and the government will have to auction them off. Shares in some companies that invested heavily in coal mining projects sank after the ruling.
PHOTO: A local woman prepares to carry coal at an open coal field at Dhanbad district in the eastern Indian state of Jharkhand September 19, 2012.
CREDIT: Ahmad Masood