Engineers inspect electric transmission lines at Adani Power Company thermal power plant at Mundra in the western Indian state of Gujarat on Sept. 24, 2012. Reuters/Amit Dave

(Reuters) - Jindal Steel and Power Ltd has shelved a $10 billion coal-to-diesel project, its chairman told Reuters, becoming the first big casualty of a Supreme Court decision to scrap coalfields allocated to private firms since 1993.

Jindal Steel's 1.5 billion ton coalfield in Odisha was among 214 cancelled by the Supreme Court in September, when it ruled the practice of selective allocation was illegal and arbitrary. With nine coalfields taken back, the company has been worst hit by the tougher-than-expected verdict.

Naveen Jindal, the chairman of the company and youngest son of its founder, O.P. Jindal, said it seemed the government was not keen to support his plan of converting low-quality coal to 80,000 barrels per day of diesel. India is a big importer of crude oil that is refined to make diesel and petrol.

"The project was specifically to meet the strategic needs of the country," Jindal said on Monday in an interview at his Delhi residence. "(But) the government does not seem to be interested. If there is no coal block, how can the project go ahead?"

Following the court order, Prime Minister Narendra Modi's government has promised to finish an auction of the coalfields by March next year. The government will open up the nationalized coal industry for commercial mining by private companies for the first time in more than four decades.

Jindal Steel will bid for some of the fields but has to deposit about 30 billion rupees ($485 million) with the government by December as a levy for the coal it has dug out from the mines that now stand cancelled.

The court order and related uncertainties due to the controversy dubbed "Coalgate" have sent shares in the $2.12 billion company down 42 percent so far this year, compared with a 34 percent jump in the benchmark index.

But Jindal, a former parliamentarian from the opposition Congress party, said he would nevertheless expand the company's businesses aggressively.

Steel capacity will jump to 12 million tons per year in three years from about 7 million currently. Power generation will hit 5,000 megawatt within a year from about 3,800 now.