Supreme Court Sets Aside NCLT Ruling Based on AI Hallucinated Fake Citations

In a landmark ruling on the use of artificial intelligence in courts, the Supreme Court has set aside orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) after finding that both forums relied on AI generated fake citations, that is, judicial precedents that simply do not exist. The decision came on July 2, 2026 in an appeal arising from insolvency proceedings, in the matter of Pooja Ramesh Singh versus Jammu and Kashmir Bank Ltd.

A bench of Justice PS Narasimha and Justice Alok Aradhe described the entry of hallucinated AI material into judicial reasoning in striking terms, comparing it to the release of methyl isocyanide in the province of law and justice: invisibly insidious and catastrophic by the time anyone notices. The Court also directed the Bar Council of India to constitute a committee of experts to examine the issues arising from the use of artificial intelligence in adjudication.

Background: An Insolvency Dispute Built on Precedents That Never Existed

The appeal arose from insolvency proceedings initiated by Jammu and Kashmir Bank Ltd under Section 7 of the Insolvency and Bankruptcy Code against Essel Infraprojects Ltd, which had executed a corporate guarantee for credit facilities extended to Pan India Utilities Distribution Company Ltd. The NCLT, Mumbai admitted the insolvency application on August 28, 2024, recording a default of Rs 87.43 crore, and the NCLAT affirmed that order on September 11, 2025. The Supreme Court has recently shown close attention to how insolvency forums function, as seen when it flagged two year delays in NCLT approvals.

Before the Supreme Court, Senior Advocate Madhavi Divan, appearing for the suspended director of the corporate debtor, contended that the tribunals had relied upon judicial decisions that either did not exist or did not support the propositions attributed to them. One example cited in the impugned orders was ICICI Bank v. Urban Infrastructure Real Estate, reported as (2019) 16 SCC 528. An affidavit placed before the Court confirmed that such authorities could not be traced in any recognised legal database, exposing them as fabricated, AI generated citations.

What the Supreme Court Held

The Court held that judicial decisions founded upon non existent precedents cannot be sustained. It observed that this was again a case where a tribunal relied on non existing, fake and hallucinated material generated through artificial intelligence as if it were precedent, and that both judgments had to be set aside to affirm and maintain the integrity of adjudication. According to the Court, a decision based on fake or hallucinated AI generated material is no decision in the eyes of the law, and even an iota of such material entering the decision making process vitiates the outcome.

Importantly, the Court did not reject technology altogether. It said that artificial intelligence may be adopted in aid of adjudication, but adjudication must remain under total and absolute control of humans, with a human in the loop at every stage. The matter has been remanded to the NCLT for fresh consideration uninfluenced by the fabricated citations.

Citing Fake Precedents Is Professional Misconduct

In a connected message to the legal profession, the Court made it clear that advocates who cite AI generated fake precedents without verification expose themselves to consequences for professional misconduct, and that judges who rely on unverified precedents commit a serious lapse. Litigants aggrieved by professional misconduct already have a statutory remedy, explained in this guide on how to file a complaint against an advocate before the Bar Council.

The ruling lands in a period of intense regulatory activity around AI in the justice system. Last month the Supreme Court published draft regulations on the use of AI in courts and invited feedback from the bar. The present judgment converts that policy conversation into binding consequences for pending cases.

Why This Matters for Businesses and Litigants

For parties in insolvency and commercial litigation, the immediate lesson is that verification of every citation is now a matter of case survival, not just professional hygiene. A favourable order can be undone on appeal if the reasoning rests on fabricated authority, as happened here, adding years to disputes. Parties tracking how operational and financial creditors use the Code can read how IBC operational debt worked in the Paytm insolvency plea against Fabzen.

The decision also signals that Indian courts will scrutinise AI assisted filings closely. Law firms and in house teams using generative tools for research should institute mandatory human verification of every authority against recognised databases before filing.

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Key Takeaways

The Supreme Court has set aside NCLT and NCLAT orders in the Essel Infraprojects insolvency matter because they relied on AI generated fake citations, and has remanded the dispute for fresh decision. Judgments based on hallucinated precedents are void, citing them is advocate misconduct, and relying on them is a serious judicial lapse. The Bar Council of India has been asked to constitute an expert committee on AI in adjudication. Anyone using AI for legal research should verify every citation in a recognised database before it reaches a court filing.