Besides, market sentiments were also hit during the morning session as the ruling BJP managed second place in a tightly contested Jharkhand Assembly election.
"Disappointing political verdict also prompted investors to cut their positions after BJP failed to win the majority in Jharkhand and ceded ground to Maha Gathbandhan party," said Shrikant Chouhan of Kotak Securities.
Top index contributor Reliance Industries was among the top laggards, shedding 1.76 per cent to close at Rs 1,570.95 a share after the government filed a petition in the Delhi High Court, seeking to block its $15 billion deal with Saudi Aramco.
Sensex closed 38 points lower at 41,642.66 after touching an intra-day high of 41,701.62 and a low of 41,474.61 while the broader Nifty settled at 12,266.15, lower by 0.05 per cent.
Maruti Suzuki, Hero MotoCorps and HDFC were the top gainers on the BSE, while Nestle India and SBI, along with RIL, were the biggest laggards.
"Investors remain side-lined with the absence of fresh triggers from the market in a holiday shortened week. Auto stocks traded positive ahead of fresh launches due next month while banking stocks witnessed profit booking," said Vinod Nair, Head of Research at Geojit Financial Services.
Nair added that there is a growing confidence among investors that the government will address the growth concerns through adequate measures to boost consumption and investment to maintain buoyancy in the market.
Asian Amarkets ended little changed on Monday with activity thinning out as investors Aremained in a festive mood for Christmas. Stocks in Europe drifted on AMonday Anear record high levels with volumes subdued as investors count down to the holiday break.
( With inputs from IANS )