Supreme Court Sets Aside NCLT Order Built on Fake AI-Generated Precedents, Declares Zero Tolerance

A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe set aside NCLT and NCLAT orders after finding six cited precedents were fake or hallucinated AI outputs, declaring such decisions void in the eyes of the law.

The Supreme Court has set aside orders passed by the National Company Law Tribunal, Mumbai and the National Company Law Appellate Tribunal after discovering that six judgments cited by the NCLT as precedents were either entirely non-existent or contained fabricated paragraphs wrongly attributed to genuine citations — all of them apparently generated by Artificial Intelligence. The Court declared that any adjudicatory decision tainted by such fake or hallucinated material “is no decision in the eyes of the law,” regardless of whether the fabricated material had a direct or indirect bearing on the outcome. The bench directed the Bar Council of India to constitute a committee to prescribe disciplinary norms for advocates who place such material before courts, and ordered the NCLT to dispose of the restored Section 7 application within two weeks.

How the Dispute Reached the Court

The appellant, Pooja Ramesh Singh, is a suspended director of Essel Infraprojects Ltd. (EIL), which acted as corporate guarantor for Pan India Utilities Distribution Company Ltd. (PIUDCL). PIUDCL had availed loan facilities from Jammu and Kashmir Bank Limited, Respondent No. 1. When PIUDCL defaulted and its accounts were classified as non-performing assets, the bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, before the NCLT, Mumbai, seeking initiation of the corporate insolvency resolution process against EIL as the corporate debtor and corporate guarantor.

By an order dated 28 August 2024, the NCLT admitted the Section 7 application, appointed an Interim Resolution Professional, and declared a moratorium under Section 14 of the Code. The NCLT's order relied, in paragraphs 44 to 53, on six Supreme Court decisions said to support the proposition that a corporate guarantee survives internal restructuring events such as demerger and amalgamation.

The appellant challenged the admission order before the NCLAT in Company Appeal (AT) (Insolvency) No. 1808 of 2024, arguing that EIL's liabilities had been transferred to another company through a scheme of demerger and subsequent amalgamation, and that a renewed sanction letter dated 18 November 2017 did not mention the guarantee, making it relinquished. The NCLAT dismissed the appeal on 11 September 2025, confirming the NCLT's findings and reproducing the six citations in its own opinion at paragraph 12. The appellant then came before the Supreme Court.

Fake Citations Surfaced at the Outset of the Supreme Court Hearing

At the very opening of the hearing, Ms. Madhavi Divan, senior counsel for the appellant, drew the Court's attention to the citations reproduced by the NCLAT from the NCLT's order. She pointed out that the judgments cited were fake and non-existent, probably AI-generated, and that even where a case citation appeared accurate, the paragraphs extracted from those judgments were not traceable to the actual law reports.

The Court undertook an independent examination of each of the six citations. The results were as follows:

• State Bank of India v. M/s Shree Ram Urban Infrastructure Ltd., 2020 SCC OnLine SC 341 (cited in paragraph 44 of the NCLT judgment) — wrong citation of an existing reported judgment attributed to a different cause title, and a non-existent paragraph. The correct cause title for that citation is M. Subramaniam v. S. Janaki, (2020) 16 SCC 728.
• Everest Kento Cylinders Ltd. v. Union of India, (2015) 2 SCC 1 (cited in paragraph 45) — correct citation but a non-existent paragraph.
• ICICI Bank Ltd. v. Urban Infrastructure Real Estate Ltd., (2019) 16 SCC 528 (cited in paragraph 47) — non-existent citation entirely.
• V.S. Dempo & Co. Ltd. v. Reliance Communications Ltd., (2021) 10 SCC 176 (cited in paragraph 49) — non-existent citation entirely.
• Canara Bank v. N.G. Subbaraya Setty & Anr., (2018) 16 SCC 228 (cited in paragraph 51) — correct citation but a non-existent paragraph.
• Sarbjit Singh v. Union Bank of India, (2022) 7 SCC 464 (cited in paragraph 53) — non-existent citation entirely.

Respondent No. 1 filed an affidavit before the Supreme Court clarifying that its counsel had not cited these judgments at the bar. The affidavit indicated that the so-called precedents were obtained through the NCLT's own research. The NCLAT, the first statutory appellate tribunal, did not catch the problem and reproduced the citations as if they were genuine.

The Court's Holding on AI-Hallucinated Material in Adjudication

The Court held that a decision founded on fake or hallucinated AI-generated material is not a decision at all, and amounts to subversion of the rule of law. The Court stated that such decisions must be set aside “even if an iota of fake or hallucinated material enters the decision-making process,” because it violates the sanctity of adjudication. This consequence applies irrespective of whether the fabricated material had a direct or indirect bearing on the outcome.

The bench drew a sharp distinction between the legitimate use of AI as a tool in legal practice and the presentation or reliance on fake or hallucinated material as court precedent. The Court clarified that its judgment is directed only at the latter and has no bearing on the rightful use of AI.

The Court characterised the infiltration of hallucinated AI outputs into judicial decision-making as comparable in effect to the release of methyl isocyanate in the province of law and justice: “invisible, insidious, and catastrophic by the time anyone notices.” The Court held that citing such material without verification is misconduct on the part of an advocate, and that relying on it as a judge constitutes a serious lapse.

The Court's Reasoning on Human Control Over AI

Beyond the immediate facts, the Court expressed a broader position on the use of AI in adjudication. It acknowledged that AI has the capability to better, and in some respects substitute, human intellectual effort, and that professionals across fields are being compelled to employ it for efficiency. However, the Court drew a line between technology as an aid and technology as a substitute for thinking and reasoning.

The Court held that it is necessary to have absolute and total control over the application and usage of AI, with a human in the loop at every stage. It acknowledged that this cannot be resolved through judicial orders alone, and that the matter is one for public policy and enforceable rules and regulations. The Court noted that the process of deliberating regulations had already commenced and would be notified in due course.

The Court placed particular emphasis on the role of the Bar and the Bench together in identifying, deciding, and applying AI to adjudication responsibly. It said that no other facet of law and legal practice had ever demanded a higher degree of coordination between the two than this one.

Direction to Bar Council of India

The Court directed the Bar Council of India, as the apex statutory body, to constitute a committee specifically to deliberate on the problem of members of the bar submitting fake and hallucinated material before courts as if they were precedents of law. The Bar Council was directed to prescribe guiding principles to prevent such occurrences and to lay down disciplinary action that will follow a violation of those norms. The Court said the Bar Council must take up this issue with utmost seriousness.

Outcome

The Court set aside the judgment and orders passed by the NCLT dated 28 August 2024 and by the NCLAT dated 11 September 2025. The Section 7 application, RCP (IB) 6/MB/2023, was restored to its original number before the NCLT, Mumbai.

The NCLT was directed to take up and dispose of the Section 7 application expeditiously, preferably within two weeks from the date of the order, i.e., from 2 July 2026. Pending disposal, the parties were directed to maintain status quo as of that date. The Court made clear that it expressed no opinion on the merits of the Section 7 application, and that the NCLT must decide the matter afresh on its own merits in accordance with law.

The appeal was disposed of accordingly, along with any pending interlocutory applications.