The 30-share BSE Sensex fell by 202.05 points or 0.49 per cent to end at 41,257.74, with 22 of its constituents closing with losses.
The broader NSE Nifty shed 61.20 points or 0.50 per cent to settle at 12,113.50 as banking, auto, FMCG and energy counters retreated.
The Supreme Court on Friday directed the top echelons of telecom firms to explain why contempt action should not be taken against them for non-compliance of its order to pay adjusted gross revenue (AGR) dues of Rs 1.47 lakh crore to the telecom department.
The order raised concerns over banks' exposure to AGR-hit telcos, mainly Vodafone Idea which reported more than Rs 6,000 crore loss for the October-December quarter.
The telecom department also withdrew its order that asked for no coercive action against telecom companies defaulting on statutory dues payment.
IndusInd Bank was the top loser among Sensex stocks, dropping by 4.38 per cent. SBI declined 2.41 per cent, HDFC Bank 1.77 per cent and Axis Bank fell by 1.5 per cent.
Among others, auto, FMCG and power stocks also closed in the red. MR ABMABM