The action has been taken following a corruption scandal surrounding how licences were handed out.
With tens of billions of dollars thought to have been lost as a result of the scandal over the illegal awarding of licences, the court has scrapped 214 of the 218 permits that were issued.
The only four licences that have been upheld are those associated with large state-backed projects.
Shares in major coal firms such as Hindalco and Jindal Steel have slumped on the court’s announcement.
The issue was first brought to attention by federal auditors in India in 2012. According to the team investigating the matter, India had lost out on around $33bn (£20bn) due to the cheap price the coalfields were sold for.
After earlier saying that the transactions had been illegal, the Attorney General of India, Mukul Rohtagi advised reporters of the cancellations.
Only forty-six of the fields have seen any work take place however, with these being given six months to wind down all operational activities.
The remaining 168 fields have not seen any work take place as yet. These have all been told to shut down immediately.
The court said that after a six month abatement from the decision being made a new bidding process can commence for all coalfield permits.