New Delhi, July 2 (SocialNews.XYZ) The Supreme Court on Thursday set aside orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) after finding that the NCLT had relied on Artificial Intelligence (AI)-generated "non-existent", fake and hallucinated judicial precedents, declaring a policy of "zero tolerance" towards the use of such material in judicial decision-making.
A Bench of Justices P.S. Narasimha and Alok Aradhe said that a decision based on fake or hallucinated AI-generated precedents was "no decision in the eyes of law" and amounted to a subversion of the rule of law.
"This is yet again a case where the Tribunal relied on non-existent, fake and hallucinated material, generated through Artificial Intelligence (AI), as if it were a precedent in support of its judgment," the apex court said.
Setting aside the NCLT's August 28, 2024 order and the NCLAT's September 11, 2025 judgment, the Justice Narasimha-led Bench restored the insolvency proceedings to the NCLT for fresh adjudication and directed it to decide the matter afresh within two weeks.
Stressing that AI can assist but cannot replace human judicial reasoning, the top court said: "What is significant for our decision-making is our resolve to adopt AI technology in aid of adjudication, while at the same time asserting and declaring total and absolute control over adjudication, with a human in the loop at every stage."
The judgment arose from an appeal filed by Pooja Ramesh Singh, suspended director of Essel Infraprojects Ltd., contesting the initiation of insolvency proceedings by Jammu and Kashmir Bank Ltd. under Section 7 of the Insolvency and Bankruptcy Code.
During the hearing, senior advocate Madhavi Divan, appearing for the appellant, highlighted that several judgments relied upon by the NCLT were either entirely non-existent or contained AI-generated paragraphs wrongly attributed to genuine Supreme Court decisions.
After independently examining the precedents cited by the NCLT, the Supreme Court found that some citations referred to non-existent judgments, while others carried fabricated paragraphs that were not traceable to the actual reported decisions.
"It is not in dispute that the judgments relied upon by the NCLT are non-existent, and some AI-generated paragraphs are wrongly attributed to genuine citations," the Justice Narasimha-led Bench recorded.
Expressing concern over the growing use of AI in legal processes, the apex court said courts must maintain "absolute and total control" over the use of such technology in adjudication.
"For us, i.e., for those in the province of adjudication and determination of disputes, this by-product of AI, i.e., the production of fake, non-existent, and hallucinated material and its utilisation as precedents in law, is like the release of methyl isocyanate in the province of law and justice: Invisible, insidious, and catastrophic by the time anyone notices. It not only contaminates but takes away the very lifeblood of judicial determination," it said.
Warning against unverified reliance on AI-generated material, the Justice Narasimha-led Bench held: "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," it added.
The Supreme Court further ruled: "We have no hesitation in declaring that such a decision is no decision in the eyes of the law... 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."
Calling for institutional safeguards, the apex court directed the Bar Council of India (BCI) to constitute a committee to examine the issue of lawyers placing fake or hallucinated AI-generated precedents before courts.
"The Bar Council must take up this issue with utmost seriousness, deliberate earnestly, and prescribe a guiding principle to prevent such occurrences, along with the disciplinary action that will follow a violation of the norms," the judgment said.
Responding to the controversy, Jammu and Kashmir Bank filed an affidavit before the apex court stating that its counsel had not cited the fake judgments and that the tribunal had relied on them based on its own research.
Observing that the judicial process stood vitiated by reliance on fabricated material, the apex court said: "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."
Restoring the insolvency application to the NCLT for fresh consideration in accordance with law, the Justice Narasimha-led Bench clarified that it had expressed no opinion on the merits of the matter, while directing the parties to maintain status quo until the NCLT disposes of the insolvency dispute.
Source: IANS
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