By March next year 214 coal blocks must be handed back to state-run Coal India because the licences were approved without following the proper legal criteria, India’s highest court ruled.

Law firm Linklaters associate Sushil Jacob said the ruling was more severe than the industry was hoping but sent a clear message about India taking a stand against improper allocation of natural resources.

“The next steps won’t be easy as investors will have to wait for the federal government to decide on the re-auction of the remaining blocks,” he said.

“To give the federal government some breathing space to manage the situation, the Supreme Court has permitted the 42 coal blocks under production to continue to produce coal for the next six months, subject to the payment of additional royalty, which at least in the short term would help with supply concerns.”

India imported about 180 million tonnes of coal last year, placing it third globally behind China and Japan, according to the World Coal Association.

Analysts cited by Reuters predicted imports could reach 210-230Mt by the 2016 financial year.

Investec called the ruling good news for coal miners outside India, pointing out that global oversupply had been depressing prices for some time.

Glencore and Anglo American had the highest exposure to coal among the major miners, it said.

Indonesia is the world’s largest coal exporter and India’s number one supplier but the Indonesian Coal Mining Association predicts exports will fall by about 14% on the back of upcoming export restrictions.

Other large exporters that could fill the gap include Australia, Russia and South Africa.

Australia is the second largest global exporter of coal and largest exporter of the coking coal required by India’s undersupplied steel mills.

The Indian court handed down its ruling in the same week as AIM-listed Oracle Coalfields signed a landmark engineering, procurement and construction agreement with Chinese company SEPCO for a 4.2Mt per annum coal mine and power plant in a section of the Thar coalfield in neighbouring Pakistan.

Thar in Sindh province close to Pakistan’s frontier with India contains one of the world’s largest lignite coal deposits.

Bilateral trade in mineral fuels would be worth up to $US10.7 billion ($A12.17 billion) if not for trade barriers between the two nuclear rivals, Pakistan’s Jinnah Institute estimates.