The Supreme Court on Thursday set aside the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in an insolvency case, after finding that the rulings were based on fictitious or non-existent precedents or were generated by artificial intelligence.
A bench of Justices PS Narasimha and Alok Aradhe referred the matter to the NCLT for further consideration, directing it to proceed unaffected by the “hallucinogenic” citations. Hallucination is a term used in technology language to refer to information fabricated by artificial intelligence systems.
The court held on Thursday that a judicial decision based on non-existent precedents cannot stand, and that any ruling tainted by even “a shred” of such material is “not a decision in the eyes of the law,” regardless of whether the false precedent influenced the final outcome or not.
In its order, the bench compared the threat posed by AI-generated precedents to the threat posed by methyl isocyanate, the gas that killed thousands in the 1984 Bhopal gas tragedy, and described such substances as “invisible, insidious, and catastrophic by the time anyone notices them.” The court said that such materials “contaminate the judicial process” and strip the judicial ruling of its “lifeblood.”
The bench then directed the Bar Council of India (BCI) to constitute a committee to examine lawyers presenting fake or hallucinogenic AI-generated material before courts as a genuine precedent, and to frame guidelines with disciplinary consequences for violations. She said courts should adopt a “zero tolerance” policy for citing or relying on such material, and that a lawyer who cites hallucinogenic judgments is committing professional misconduct, while a judge who relies on them is committing a serious error.
Read also: A Real Test of AI Regulations: Reducing Waiting for Lawsuits
The issue that was about
The appeal before the Supreme Court arose out of the insolvency proceedings initiated by the Bank of Jammu and Kashmir Ltd under Section 7 of the Insolvency and Bankruptcy Code (IBC) against Essel Infraprojects Ltd (EIL).
EIL has executed a corporate guarantee for the credit facilities extended by the bank to Pan India Utilities Distribution Company Ltd (PIUDCL). When PIUDCL defaulted on its repayment schedule and its accounts were classified as non-performing assets, the bank moved against EIL as guarantor.
NCLT Mumbai accepted the bank’s Section 7 application on August 28, 2024, registering a default of $87.43 crore, appointment of interim resolution expert and declaration of moratorium under Section 14 of IBC.
The suspended director of EIL appealed to the NCLAT, arguing that the court had failed to account for the transfer of the company’s liabilities through a demerger plan and subsequent merger, and that the renewed penalty letter dated November 18, 2017, did not mention the guarantee, meaning it was abandoned.
The NCLAT rejected this argument on September 11, 2025, holding that the guarantee deed itself stipulates that the guarantee would not lapse in the event of the debtor company being absorbed or amalgamated with another company, and upheld the NCLT order.
Before the Supreme Court, senior advocate Madhavi Divan, who appeared for the appellant, argued that many of the judgments relied upon by the NCLT either did not exist or contained passages not recorded by any legal report. The bank’s lawyer submitted an affidavit saying that his lawyers did not cite these provisions, and it appears that the court provided them.
Read also: Justice depends on human wisdom, not artificial intelligence
Antecedents under the scanner
The NCLAT order recorded that the NCLT, in rejecting the arguments of the appellant, relied on six precedents.
The examination conducted by the Supreme Court pointed out these issues:
- State Bank of India v. Shree Ram Urban Infrastructure Ltd, referred to as 2020 SCC OnLine SC 341 (NCLT Order, para 44): The citation number belongs to a different, real Supreme Court ruling, and the paragraph attributed to the case does not exist.
- Everest Kento Cylinders Ltd v Union of India, (2015) 2 SCC 1 (para 45): The citation is correct, but the paragraph relied upon does not exist in the ruling.
- ICICI Bank Ltd v Urban Infrastructure Real Estate Ltd, (2019) 16 SCC 528 (para 47): Citation not found.
- VS Dempo & Co Ltd v Reliance Communications Ltd, (2021) 10 SCC 176 (para 49): Citation not found.
- Canara Bank v. NG Subbaraya City & Anr, (2018) 16 SCC 228 (para 51): The citation is correct, but the paragraph attributed to it does not exist.
- Sarbjit Singh v. Union Bank of India, (2022) 7 SCC 464 (para 53): Citation not found.
The court noted that some citations referred to rulings that never existed, others cited real cases but attributed fabricated passages to them, and at least one citation bore the name of a completely different Supreme Court decision. It observed that fake antecedents are not detected even at the NCLAT stage, and courts cannot realistically verify every citation before them.
The pattern has been tagged before
The July 2 order is not the Supreme Court’s first intervention into AI-fabricated material in lawsuits this year.
On February 27, the same bench of Justices Narasimha and Aradhi took notice of a lower court relying on non-existent AI rulings, in a case that reached the Supreme Court by challenging the January order of the Andhra Pradesh High Court.
This dispute relates to objections to an attorney’s report in a lawsuit. The trial court dismissed those objections with an order based on the fictitious rulings, and although it registered a “word of caution” after realizing that the rulings were generated by the AI, it continued to decide the case on the merits and denied the petition for review regardless.
The court then held that a decision based on such non-existent provisions “does not constitute an error in decision-making” but amounts to misconduct with legal consequences.
Before that, on February 17, a bench headed by Chief Justice of India Surya Kant noted a broader trend of lawyers filing AI-drafted petitions citing non-existent rulings — including one titled “Mercy Against Mankind” — while hearing a public interest litigation over the guidelines for political speech.
Last month, the Supreme Court released the draft “Regulations on the Use of Artificial Intelligence (AI) in Courts, 2026” for public consultation, which applies to the Supreme Court, high courts, district courts, tribunals and statutory tribunals.
The draft is based on the principle of human primacy and judicial independence, according to which Amnesty International must remain “entirely subordinate” to judges and cannot decide cases, issue sentences, assess bail eligibility, predict recidivism, or assess the credibility of witnesses, HT reported.
It allows AI to legally research, check citations, summarize, translate, transcribe, assist with drafting and case management, while requiring disclosure whenever AI is used to prepare a filing – with responsibility for any resulting error falling on the lawyer or litigator, not the technology.
The project also proposes a national governance structure, including bodies and committees to develop standards to verify obstetric outputs.
