The license allowed Natco to sell a generic version at less than one-30th of Bayer's price.
The appellate board Monday ordered Natco to pay 7% of its net sales from the drug to Bayer.
The patent appeals office also ruled that under the license Natco must pay 7 percent in royalties on net sales to Bayer.
Last year, India allowed Natco Pharma to produce Nexavar and, on Monday, the patent appeals office rejected Bayer's plea to overturn that ruling.
The German company last year approached the Intellectual Property Appellate Board after the local patent authority granted a "compulsory license" to Natco Pharma Ltd.
Shares of Novartis India fell almost 5% on the Bombay Stock Exchange, while stocks of generic drugmakers such as Cipla and Natco rose after the judgement.
BBC: Novartis: India rejects patent plea for cancer drug Glivec
The Indian Controller General of Patents, Designs and Trademarks allowed Natco to make copies of the liver- and kidney-cancer drug on the grounds that Nexavar was too expensive for most people in India.
The patent body allowed Natco to legally make and sell the low-cost version of Bayer's drug on the condition that it pay a royalty of about 6% of the net sales from the drug to the German company.
Last year, India's patent office allowed local drug manufacturer Natco Pharma Ltd. to produce a generic version of Bayer's kidney and liver cancer drug Nexavar on the grounds it would make the drug available to the public at a reasonably affordable price.
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