Supreme Court Sets Aside Judgments Relying On Fake AI-Generated Precedents

"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," Supreme Court, in a landmark ruling dated July 02, 2026, has set aside orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) after finding that the adjudicating authority relied on "fake and hallucinated" precedents generated by Artificial Intelligence (AI).

A bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that the use of non-existent material in judicial decision-making amounts to a subversion of the rule of law and violates the sanctity of adjudication.

The matter arose from a Section 7 application under the Insolvency and Bankruptcy Code (IBC) filed by Jammu and Kashmir Bank Ltd against Essel Infraprojects Ltd (EIL). The appellant, a suspended director of EIL, challenged the NCLT Mumbai’s order admitting the insolvency process, which was subsequently upheld by the NCLAT. The appellant contended that the tribunals had relied on fictitious case laws and non-existent legal paragraphs to justify their findings on the liability of the corporate guarantor.

The primary question before the court was whether a judicial order based on fake, AI-generated material is sustainable in law. The court was also called upon to determine the extent of responsibility of the Bar and the Bench in verifying the authenticity of precedents cited during proceedings and the necessity of maintaining "human in the loop" oversight when using AI technology.

AI Hallucinations Compared To Environmental Catastrophe

The Supreme Court expressed grave concern over the tendency of AI to generate non-existent or "hallucinated" results when prompted for legal precedents. The bench compared the infiltration of such fake material into the province of law to the release of methyl isocyanate, describing it as invisible, insidious, and catastrophic by the time it is noticed. The court noted that such contamination takes away the very lifeblood of judicial determination.

Zero-Tolerance For Unverified AI-Generated Precedents

Emphasizing the need for absolute integrity in the judicial process, the court declared a zero-tolerance policy for producing or citing AI-generated precedents without rigorous verification. The bench held that it is an act of professional misconduct for an advocate to cite such judgments without verification and a serious lapse for a judge to rely on them. The court asserted that any decision tainted by even an "iota" of hallucinated material must be set aside to maintain the integrity of the process.

Adjudication Must Remain Under Absolute Human Control

The bench clarified that while the judiciary is open to adopting AI technology to aid adjudication, there must be total and absolute control over the process with a human in the loop at every stage. The court observed that while AI can substitute routine human effort, it cannot replace the disciplined training of the mind, lived experiences, and the capacity to discern right from wrong, which are essential for the quest for justice.

"If thinking is delegated and it forms a habit, it will have serious consequences for the core of human existence."

Detailed Examination Of Fictitious Citations

Upon an independent examination, the court found several citations in the NCLT judgment to be fraudulent. For instance, while the citation for Everest Kento Cylinders Ltd. v. Union of India was correct, the paragraph excerpted from it was non-existent. Similarly, the court noted that ICICI Bank Ltd. v. Urban Infrastructure Real Estate Ltd. and Sarbjit Singh v. Union Bank of India were entirely non-existent citations, with fake paragraphs attributed to genuine case titles in other instances.

Direction To Bar Council Of India For Regulatory Oversight

Recognizing that prohibitory declarations alone are insufficient, the court directed the Bar Council of India (BCI) to constitute a committee to deliberate on the issue of advocates submitting fake material. The BCI has been tasked with prescribing guiding principles and disciplinary actions to prevent such occurrences. The bench underscored that the coordination between the Bar and the Bench is now more critical than ever to identify and apply AI responsibly in the determination of disputes.

"The real success is not in the making of the Rule or Regulation, but to be found in the power of the will of the Bar as well as the Bench, to harness this science and apply it with care and caution."

The Perils Of AI Dependency In Legal Practice

The court cited international instances of AI-related legal errors, including a UK case involving the law firm Pinsent Masons, to highlight the risks of "dependency alarms." The bench observed that today’s courts implicitly trust lawyers when precedents are cited, and the burden of verifying every citation manually would impose an immense hardship on the judiciary if the Bar does not maintain its ethical standards in the age of AI.

The Supreme Court set aside the NCLT and NCLAT orders and restored the Section 7 application to its original number. While the court did not express an opinion on the merits of the insolvency dispute, it directed the NCLT to dispose of the matter expeditiously within two weeks. The bench concluded that a decision based on hallucinated material is "no decision" and ordered the parties to maintain status quo pending the final disposal by the adjudicating authority.

Date of Decision: July 02, 2026