A three-judge bench led by Chief Justice R M Lodha held that all the allocation done in the last two decades suffer from vice of arbitrariness and could not withstand the test of legal scrutiny.
The bench said illegality crippled allocation done both under the government dispensation scheme and those by the screening committee for various reasons.
It said the procedure adopted by the screening committee was not fair and no objective criteria were adopted in the process of allocation.
The bench added that the principles of common good and public purpose were brazenly overlooked and the guidelines were practised more in breach.
However, whether these allocation should be scrapped or not, the court said it would hear the government and other parties further on the future course of action.
Most of these allocations were done during the Congress-led UPA regime upon the recommendations of the screening committee.
The court also said coal meant for Ultra Mega Power Projects (UMPPs) will not be diverted for any other purpose to any entity in future.
It ruled on a batch of petitions that had challenged the validity of the allocations, alleging illegalities and bias.
The court is separately monitoring the criminal investigation into the allocation scam.