NEW DELHI – India's top court on Wednesday scrapped all but four of 218 coal blocks allocated by the government over the past two decades, in a tougher-than-expected ruling that sank shares of companies that have invested heavily in projects around the concessions.

Most power, steel and cement companies that won blocks will have until end-March to return them, and the government then plans to auction them off. The previous practice of selective allocation was ruled illegal and arbitrary by the court.

The uncertainty surrounding the allocations had made it difficult to develop the blocks. Only about 40 are producing at a capacity of about 9 percent of the 566 million tonnes of coal that India dug out of the ground last fiscal year.

Coupled with less-than-expected output from state behemoth Coal India Ltd, this has kept India - the world's No. 3 importer though it sits atop the fifth biggest reserves of the fuel - chronically short of coal and heavily reliant on imports.

Half of India's thermal power stations had less than a week's supply of coal on hand as of Monday, the lowest since mid-2012 when 620-million people in India were cut off in one of the globe's worst blackouts ever.

"The ruling is more severe than the industry was hoping but it sends a clear message about India taking a stand against the improper allocation of national resources and in favour of improving transparency and good governance," said Sushil Jacob, a lawyer at London law firm Linklaters.

India's Supreme Court, led by Chief Justice Rajendra Mal Lodha, let off two coal blocks operated by Reliance Power and one each by state firms NTPC Ltd and Steel Authority of India Ltd, as some of them are developing mega power projects critical for the country.

Shares of other block holders such as Jindal Steel and Power, Hindalco Industries and Tata Power fell after the latest ruling as they will not only lose their mines but may also be fined.

The companies can keep producing from their mines until the March 31 deadline.

The government will now be free to auction off the cancelled blocks after the end of this fiscal year, government lawyer Mukul Rohatgi told reporters outside the court.

A spokesman for the Coal Ministry, which allocated the concessions, could not be reached for comment.

COLLATERAL DAMAGE

Coal fuels more than two-thirds of the power generated in India, and while the number of power plants has grown, various court cases and red tape have slowed coal output growth.

A third of the nation's more than 1.2-billion people go without electricity.

An official of a power company based in the eastern state of Odisha said how the government handles the aftermath of the court ruling will determine its impact on coal and power supply.

"We have a real intention of providing power to the people of India," the official said, declining to be named. "We are hoping the government will come up with a solution."

Kumar Mangalam Birla, chairman of Hindalco, told reporters: "I'm sure the government has a back-up plan as to how to accommodate these mines that have been deallocated."

Accusations of crony capitalism in allocating India's resources from coal to mobile telephone bandwidth had dogged the former government of Manmohan Singh. His Congress Party suffered its worst defeat in polls concluded in May.

An audit in 2012 showed that allocating the resources, instead of auctioning them off, had cost the exchequer as much as $33 billion, leading to investigations into the practice.

Though the government now wants to auction the blocks, it will be a time consuming process that will lead to increased imports in the meantime. There was a tepid response to India's first coal block auction attempt in February, with only two firms bidding for one of the three blocks on offer.

"The six-month time frame should ensure that the impact on coal imports and current account deficit will be marginal," said

A. Prasanna, economist at ICICI Securities Primary Dealership. "In case the auction mechanism fails to take off, coal imports could increase in 2015/16."

The block cancellations will also hit several banks. State Bank of India and Power Finance are among financial institutions that have together lent $10-billion to $12-billion to the coal, power and steel sectors.

Some experts, though, have said a closure in the matter will help the government start with a clean slate.

"We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the Supreme Court verdict on coal blocks allocation," said Arundhati Bhattacharya, chairwoman of State Bank of India.