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NEW DELHI, India — A long-running controversy in India took a critical turn Thursday when the Supreme Court cancelled 122 telecommunications licences awarded at below-market prices.

It is a harsh rebuke to the Indian government that has been stained and at times paralyzed by the so-called ‘2G scam' that goes back to 2008 when telecom licences were sold at a pre-set price on a first come, first served basis. By not going through a more transparent auction process, auditors figure it cost the government an estimated US$40 billion.

The former cabinet minister who oversaw the licence sale at the time, Andimuthu Raja, faces a list of corruption charges and is awaiting trial in jail. Other public officials and corporate executives are also accused of profiting though some have been granted bail. They deny any wrongdoing.

In declaring the 122 cell phone licences "null and void" the High Court ordered a new wireless spectrum auction to be held within four months. The effect on customers is minimal as they account for 5 per cent of a vast market of 900 million mobile subscribers.

Yet the impact of the 2G decision on politics, business and public opinion in India is more profound. The scandal collided with a disenchanted public here and became the touchstone for Indians fed up with high-level corruption. It fuelled a national movement and wide public debate about government accountability and the need for stronger anti-graft laws.

Judges also ordered a lower court to decide whether charges should be brought against current Home Minister P. Chidambaram who was finance minister at the time. He denies any wrongdoing.

The decision seemed to revive faith among Indians at least in the Supreme Court.

"Nobody is bigger than the system," said one Twitter post (try searching #2G or #India for others).

The political opposition rallied behind the judiciary's ruling and declared, "This is a collective failure of government of India."

It is also a shock to the telecom industry and foreign investors that have met with a series of chills about doing business in India. Notorious bureaucracy and the government's hot-cold stance on foreign direct investment have made multinationals wary to wade in, especially to sectors that are heavily regulated.

"This is very bad for India's reputation," an analyst told the Wall Street Journal.

Some of the licences are held in joint ventures with foreign companies including Etisalat of the United Arab Emirates. Uninor, in partnership with Telenor of Norway, issued a statement saying, "We are shocked to see that Uninor is being penalized for faults the court has found in the government process."

(A senior executive of Unitech, another Uninor partner, is currently on bail on charges of fraud related to the licence.)

It is still unclear how the new auction process will roll out or whether it will raise the sort of money that might have been possible years ago. Indian telcos are likely to rebid though their foreign partners may reconsider.

The 2G case found its way to the Supreme Court through a public interest plea to investigate. That was 2010 and it earned the attention of Justice Asok Kumar Ganguly. The historic verdict he rendered was also his last: He begins his retirement on Friday.

Follow Janis Mackey Frayer on Twitter @janisctv