The Supreme Court has set aside the judgments of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) after finding that the adjudicating authority had relied on non-existent and AI-hallucinated judicial precedents, declaring that courts must adopt a “zero-tolerance” approach towards the citation or reliance on fake AI-generated material. The Court also directed the Bar Council of India (BCI) to constitute a committee to frame guidelines and disciplinary norms governing advocates who submit AI-generated fictitious precedents before courts.
A Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe passed the judgment in an appeal arising from insolvency proceedings initiated by Jammu and Kashmir Bank Ltd. against Essel Infraprojects Ltd. under Section 7 of the Insolvency and Bankruptcy Code.
The case arose from an application filed by Jammu and Kashmir Bank before the NCLT, Mumbai, seeking initiation of the corporate insolvency resolution process(CIRP) against Essel Infraprojects Ltd., which had executed a corporate guarantee for loan facilities extended to Pan India Utilities Distribution Company Ltd. The NCLT admitted the insolvency petition, and the NCLAT affirmed the decision. Before the Supreme Court, the appellant pointed out that several judicial precedents relied upon by the NCLT were either non-existent, carried incorrect citations, or contained AI-generated paragraphs falsely attributed to genuine judgments.
Upon independently verifying the authorities cited by the NCLT, the Supreme Court found that several decisions either did not exist at all or were wrongly cited. In some instances, while the case citation was genuine, the paragraphs extracted and relied upon by the Tribunal were entirely fabricated. The Court observed that even the NCLAT failed to detect these errors while affirming the NCLT’s decision.Making strong observations on the growing use of Artificial Intelligence in legal practice, the Court held:
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“It is necessary for Courts to adopt a zero-tolerance mode for producing, citing or using AI-generated precedents without verification. It is a misconduct on the part of an advocate to cite such judgments without verification. Equally, it is a serious lapse if a judge relies on such a fake or hallucinated AI-generated material as precedents in support of the determination. We have no hesitation in declaring that such a decision is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making. Such decisions are to be set aside even if an iota of fake or hallucinated material enters the decision-making process, as it would violate the sanctity of adjudication. It is absolutely necessary to maintain integrity in decision- making…”
The Bench emphasised that while AI can significantly assist legal research and adjudication, human control over judicial decision-making must remain absolute. It cautioned that unregulated dependence on AI risks eroding independent reasoning and judicial discipline, stressing that technology must remain an aid to adjudication rather than a substitute for human judgment.
Drawing an analogy to a catastrophic industrial disaster, the Court observed that the generation and use of fake AI precedents is “like the release of methyl isocyanate in the province of law and justice: invisible, insidious, and catastrophic by the time anyone notices.” The Court further held:
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“A decision of a Court or an adjudicating authority based on material which is fake and hallucinated is no decision at all, and it amounts to subversion of the rule of law. Such a decision is unsustainable and has to be set aside at the earliest.”
Recognising the need for institutional safeguards, the Bench directed the Bar Council of India to constitute a committee to examine the issue of advocates relying on AI-generated fictitious precedents, prescribe guiding principles to prevent such occurrences, and recommend appropriate disciplinary consequences for violations.
Setting aside the orders of the NCLT and NCLAT, the Supreme Court restored the Section 7 insolvency application to the file of the NCLT and directed it to decide the matter afresh on its own merits, uninfluenced by the earlier findings. Considering that the insolvency proceedings had remained pending for a considerable period, the Court requested the NCLT to dispose of the application preferably within two weeks, while directing the parties to maintain status quo in the meantime.
