A division bench of the court, comprising Justice Surya Kant and Justice Amol Rattan Singh, directed Haryana government to conduct an auction of the land in question by inviting international bids within a month.
However, DLF would be able to participate in the auction process.
The decision came on a bunch of petitions filed by farmers challenging the acquisition and transfer of the land to DLF, citing that it was a village common land, said their counsel Inderpal Goyat.
However, the counsel said the bench upheld the acquisition of the land by state-owned authorities but set aside the land transfer to DLF.
DLF had proposed to come up with golf villas at the site.
The court had in 2012 restrained DLF developers from carrying out any construction and also from creating any third party rights.
In August, 2009, DLF had bagged a 350-acre plot for Rs 1,750 crore for developing a recreation and leisure project.
The letter of acceptance was issued to DLF which was found the sucessful bidder by Haryana State Industrial and Infrastructure Development Corporation Ltd (HSIIDC).
DLF had emerged as the sole bidder for the 350-acre project after the bids of other parties-Unitech and Malaysia-based Consortium comprising Country Heights, Country Club of South Africa and Rajarhat IT Park - could not qualify on technical grounds.
The qualified bidder, DLF, had quoted its bid at Rs 12,000 per sq mt against the reserve price of Rs 11,978 per sq mt for the project.