Chennai Super Kings, led by India's one-day international captain Mahendra Singh Dhoni, and Rajasthan Royals, skippered by star Australian batsman Steve Smith, had been hoping to escape with heavy fines.
But a tribunal led by former chief justice Rajendra Mal Lodha announced they would be banned from the next two editions of the annual six-week tournament to protect "the integrity of the game"
Gurunath Meiyappan -- the son-in-law of Narayanaswami Srinivasan, the Chennai franchise owner and the current boss of the International Cricket Council -- was banned for life from cricket-related activities.
Hearing word that we have been banned from the @IPL at the @rajasthanroyals for 2 years. Surely a gee up?!
— Ben Cutting (@Cuttsy31) July 14, 2015
A similar punishment was handed down to Raj Kundra, co-owner of the Rajasthan team and husband of Bollywood actress Shilpa Shetty.
"Their conduct has affected the image of the game, the players and others associated with the tournament," Lodha told reporters while revealing his three-member panel's verdict in the capital New Delhi.
Asked about the financial losses of players from the two teams, Lodha said: "We did not consider financial losses to players and teams. That is not significant. The integrity of the game is what matters."
The outcome could have major financial consequences for the glitzy Twenty20 league which draws some of the biggest names in world cricket and raises questions over the future of the two franchises which are both former champions.
It was not immediately clear whether the two franchises can be sold, thus allowing the cricketers to continue to be part of the IPL.
There was also no immediate reaction from the Board of Control for Cricket in India (BCCI).
"Huge injury has been caused to the image of cricket which is a passion for millions of people," Lodha said.
"They (Meiyappan and and Kundra) have brought the game to disrepute.
"The purity of the game has been affected. Fans feel cheated and doubts abound if the IPL is clean."
Lodha was appointed head of the sentencing panel in January after the Supreme Court had found Kundra and Meiyappan guilty of betting on the outcome of matches in 2013.
The court had rejected the claims of Meiyappan, who had previously been described as team principal, that he was merely an enthusiast.
The court also ruled at the same time that Srinivasan would be banned from holding any post in the BCCI, where he served as the president for three years from 2011.
The hugely popular Chennai Super Kings are the most successful team in the IPL, having won the tournament in 2010 and 2011. They finished runners-up in 2008, 2012, 2013 and 2015.
Rajasthan Royals won the inaugural event in 2008 under the captaincy of Australian spin legend Shane Warne, but have failed to make the final since then.
The 2013 IPL season was mired in controversy after police launched legal proceedings against several officials and three Rajasthan Royals players, including former Test fast bowler Shanthakumaran Sreesanth, for illegal betting and spot-fixing.
The IPL, which is broadcast around the world, is hugely popular in India with its mix of sport and showbiz, with a number of teams fronted by big Bollywood names.
But it has been continuously dogged by corruption allegations and on Monday Hiken Shah, a first-class player from Mumbai, was suspended over an approach he made to an unnamed team-mate before this year's tournament in April-May.
The Lodha panel had also been empowered to recommend changes in the BCCI constitution, but this will be taken up at a later date.
International news organisations including Agence France-Presse have suspended on-field coverage of matches hosted by the BCCI since 2012 after the board imposed restrictions on picture agencies.
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