The BBC has reported Justice AK Patnaik, head of a two-judge panel, said: "Chennai Super Kings and Rajasthan Royals will not be allowed to participate in the IPL."
The judges have been examining a report commissioned into wrongdoing in last year's tournament.
The Supreme Court has also recommended former India skipper Sunil Gavaskar take over as interim president of the country's cricket board in place of Narayanaswami Srinivasan.
The judges claim Srinivasan needs to resign so a fair inquiry into spot-fixing in the IPL can be carried out.
Srinivasan's son-in-law, Gurunath Meiyappan, was indicted last month on charges of betting and passing on information to illegal bookmakers.