Decisions Based on AI-Hallucinated Precedents Unsustainable: SC

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 | Zero tolerance for the Bar as well as the Bench to cite, refer to, or rely on AI-generated precedents without verification | Bar Council must take up this issue with utmost seriousness: SC

Summary: The Supreme Court in Pooja Ramesh Singh Vs. Jammu and Kashmir Bank Ltd. and Anr. held that judicial decisions founded on fake, non-existent, or AI-generated hallucinated precedents are legally unsustainable and amount to a subversion of the rule of law. In a challenge to the admission of a Section 7 application under the Insolvency and Bankruptcy Code, the Court found that the NCLT had relied on fabricated and wrongly cited precedents, while the NCLAT failed to detect the defect. Declaring a zero-tolerance approach, the Court ruled that advocates who cite AI-generated precedents without verification commit professional misconduct, and adjudicating authorities relying on such material commit a serious judicial lapse. It directed the Bar Council of India to frame guidelines and consider disciplinary measures against such practices. Consequently, the Court set aside the NCLT and NCLAT orders, restored the Section 7 application for fresh adjudication on merits, directed its expeditious disposal, and ordered the parties to maintain status quo pending the proceedings.

Introduction: Insolvency and Bankruptcy Code, 2016, Sections 7 and 14 – challenge to admission of a Section 7 application against the corporate guarantor, where the NCLT relied on precedents later shown to be fake, non-existent, wrongly cited, or containing non-existent extracted paragraphs, and the NCLAT failed to detect the defect. Held that Courts and tribunals must adopt zero tolerance for producing, citing, or using AI-generated precedents without verification; citation of such material by counsel is misconduct, and reliance on such fake or hallucinated material by the adjudicating authority is a serious lapse. A decision founded on such material is no decision in the eyes of law and is unsustainable irrespective of whether the material had a direct or indirect bearing on the outcome. Accordingly, the orders of the NCLT and NCLAT were set aside, the Section 7 application was restored to its original number for fresh consideration on merits, and the NCLT was directed to decide it expeditiously while parties maintained status quo in the meantime.

Facts of the Case

• The appeal arose from orders of the NCLT dated 28.08.2024 and the NCLAT dated 11.09.2025 in proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016. (para 1, 18)
• The appellant was a suspended director of Essel Infraprojects Ltd., the corporate debtor and corporate guarantor of the original borrower, Pan India Utilities Distribution Company Ltd., which had availed loan facilities from Jammu and Kashmir Bank Ltd. To secure those facilities, a corporate guarantee was executed by Essel Infraprojects Ltd. (para 10)
• Pan India Utilities Distribution Company Ltd. later faced severe financial stress and failed to maintain repayment schedules, and its loan accounts were classified as non-performing assets. (para 10)
• Following continuous defaults, Respondent No. 1 filed a Section 7 application before the NCLT, Mumbai, seeking initiation of the corporate insolvency resolution process against the corporate debtor/corporate guarantor for recovery of outstanding financial debt. (para 11)
• The NCLT found the existence of debt and default and, by order dated 28.08.2024, admitted the Section 7 application, appointed an Interim Resolution Professional, and declared moratorium under Section 14. (para 12)
• The appellant challenged the admission order before the NCLAT in Company Appeal (AT) (Insolvency) No. 1808 of 2024. (para 12)
• Before the NCLAT, the appellant contended that liabilities had been transferred to another company due to a scheme of demerger and subsequent amalgamation, and that a renewed sanction letter dated 18.11.2017 did not mention the guarantee and therefore the guarantee stood relinquished. (para 12)
• The NCLAT dismissed the appeal, observing that internal adjustment by way of demerger/merger/amalgamation had no effect on the liability of the corporate guarantor in view of clause 8 of the guarantee deed, and it also referred to several judgments said to have been relied upon by the NCLT. (para 13)
• In the present appeal, the appellant pointed out at the outset that the citations/judgments relied upon by the NCLT and referred to in paragraph 12 of the NCLAT judgment were fake and non-existent, probably AI-generated, and that even where citations were accurate, the extracted paragraphs were not traceable in law reports. (para 14)
• Respondent No. 1 filed an affidavit stating that the alleged judgments relied on by the NCLT were not cited by its counsel and that the so-called precedents were obtained through the adjudicating authority’s own research. (para 16)

Contentions of the Parties

• Appellant: The NCLT and the NCLAT relied on fake and non-existent judgments; even where some citations were genuine, the extracted passages were not traceable. The appellant also advanced brief arguments on merits. (para 14)
• Appellant before NCLAT: The NCLT failed to consider transfer of liabilities due to demerger and amalgamation, and the renewed sanction letter dated 18.11.2017 did not mention the guarantee, showing relinquishment of the guarantee. (para 12)
• Respondents: Learned counsel for the respondents countered the appellant’s submissions on merits. (para 14)
• Respondent No. 1 by affidavit: The judgments relied on by the NCLT were not cited by its counsel at the bar; those precedents were obtained through the tribunal’s own research. (para 16)

Issues

• Whether reliance by the NCLT on fake, non-existent, or hallucinated AI-generated precedents, and the NCLAT’s failure to detect the same, vitiated the adjudicatory process and rendered the orders unsustainable. (para 1, 7, 15-17)
• What legal standard should govern production, citation, and use of AI-generated precedents in adjudication. (para 5-9)
• What consequential relief and directions were required in the present case after finding that the decisions were tainted by fake or hallucinated material. (para 18-21)

Decision

1. Court’s approach to AI in adjudication

• The Court stated that while AI has acquired extraordinary capability and may assist intelligent, efficient and swift functioning, unregulated use may infiltrate legal practice, judicial decision-making and decision-making itself; hence, caution is necessary. (para 2-3)
• The Court held that it would adopt AI technology in aid of adjudication while at the same time asserting total and absolute control over adjudication, with a human in the loop at every stage. (para 1)
• The Court emphasized that it is compelling and necessary to have absolute and total control over the application and usage of AI, and observed that public policy and enforceable rules and regulations would be required, while also stressing the coordinating role of the Bar and the Bench. (para 5)

2. Zero-tolerance rule regarding fake or hallucinated AI-generated precedents

• The Court clarified the legal position concerning AI’s tendency to generate non-existent, fake or hallucinated material and treated the use of such material as precedents in law as destructive of the judicial process. (para 6)
• The Court declared that courts must adopt a zero-tolerance mode for producing, citing or using AI-generated precedents without verification. (para 7)
• The Court held that citing such judgments without verification is misconduct on the part of an advocate, and judicial reliance on such fake or hallucinated AI-generated material as precedent is a serious lapse. (para 7)
• The Court further declared that a decision so tainted is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making, and that such decisions are to be set aside even if an iota of fake or hallucinated material enters the process, since this violates the sanctity of adjudication. (para 7)
• The Court clarified that its judgment had no bearing on the rightful use of AI, but only on the presentation or reliance on fake or hallucinated material as if it were a court precedent. (para 7)
• The Court observed that mere declaration of a prohibitory norm is insufficient and that consequential accountability must follow. (para 8)

3. Direction to the Bar Council of India

• The Court directed the Bar Council of India, being the apex statutory body, to constitute a committee and deliberate on the issue of members of the Bar submitting fake and hallucinated material before courts as if it were precedent. (para 9)
• The Bar Council was directed to take the issue with utmost seriousness, deliberate earnestly, and prescribe a guiding principle to prevent such occurrences, together with disciplinary action to follow violation of the norms. (para 9)

4. Examination of the precedents relied upon by the NCLT

• The Court recorded that it was not in dispute that the judgments relied upon by the NCLT were non-existent, and that some AI-generated paragraphs were wrongly attributed to genuine citations. (para 15)
• On independent examination, the Court found that the cited decision State Bank of India v. M/s Shree Ram Urban Infrastructure Ltd., 2020 SCC OnLine SC 341, was a wrong citation of an existing reported judgment and carried a non-existent paragraph. (para 15)
• The Court found that Everest Kento Cylinders Ltd. v. Union of India, (2015) 2 SCC 1, though correctly cited, was linked to a non-existent paragraph. (para 15)
• The Court found that ICICI Bank Ltd. v. Urban Infrastructure Real Estate Ltd., (2019) 16 SCC 528, was a non-existent citation. (para 15)
• The Court found that V.S. Dempo & Co. Ltd. v. Reliance Communications Ltd., (2021) 10 SCC 176, was a non-existent citation. (para 15)
• The Court found that Canara Bank v. N.G. Subbaraya Setty & Anr., (2018) 16 SCC 228, though correctly cited, was linked to a non-existent paragraph. (para 15)
• The Court found that Sarbjit Singh v. Union Bank of India, (2022) 7 SCC 464, was a non-existent citation. (para 15)

5. Effect of the taint on the adjudicatory process

• The Court noted Respondent No. 1’s affidavit that these judgments had not been cited by its counsel and had been sourced through the adjudicating authority’s own research. (para 16)
• The Court observed that the fake and non-existent judgments escaped scrutiny by the first statutory appellate tribunal as well, and remarked on the practical difficulty if courts were required to verify the authenticity of each judgment cited. (para 16)
• The Court held that the judicial process and the judgment under challenge stood tainted by the use of materials said to be precedents but actually unreal, fake and non-existent. (para 17)
• The Court held that a decision of a court or adjudicating authority based on fake and hallucinated material amounts to subversion of the rule of law, is unsustainable, and has to be set aside at the earliest. (para 17)

6. Relief granted in the present case

• Applying the above principle, the Court set aside the judgment and orders passed by the NCLT and NCLAT dated 28.08.2024 and 11.09.2025. (para 18)
• The Court restored the Section 7 application, RCP (IB) 6/MB/2023, to its original number. (para 18)
• The Court directed the NCLT to proceed with the application and pass orders in accordance with law, making it clear that no opinion had been expressed on the merits and that the adjudicating authority must decide on its own merits based on the facts and circumstances. (para 19)
• Having regard to the age of the Section 7 application, the Court directed expeditious disposal, preferably within two weeks from the date of judgment. (para 20)
• Pending disposal of the Section 7 application, the parties were directed to maintain status quo as of the date of the judgment. (para 20)

Conclusion

The Supreme Court held that the use of fake, non-existent, or hallucinated AI-generated precedents in adjudication strikes at the integrity and sanctity of the judicial process. Such reliance renders the decision no decision in the eyes of law and necessitates immediate setting aside, regardless of whether the tainted material directly or indirectly affected the result. On that basis, the impugned orders were annulled and the Section 7 proceedings were restored for fresh adjudication on merits.