The Supreme Court will review claims that AI-generated case laws were cited in pleadings, raising concerns about fabricated inputs. It cautioned that the appellant would be taken to task if the citations proved fictitious, echoing the opponent’s charge.
New Delhi: The Supreme Court announced it would investigate allegations regarding a rejoinder submitted by Gstaad Hotels’ promoter, Deepak Raheja, which reportedly included over 100 fabricated or potentially AI-generated case laws.
Senior Advocate Neeraj Kishan Kaul raised concerns about these fictitious case laws during a hearing related to insolvency proceedings against Gstaad Hotels.
While representing Omkara Assets Reconstruction Pvt Ltd., Kaul claimed that many of the legal precedents cited by Raheja in his rejoinder “do not exist at all.”
He pointed out that some of the references included non-existent criminal law rulings falsely presented as precedents under the Insolvency and Bankruptcy Code (IBC), potentially generated by AI prompts.
Kaul also noted inaccuracies in case facts and instances where the same judgment was improperly cited for multiple arguments without being addressed in the original decision.
A Bench consisting of Justices Dipankar Datta and Augustine George Masih took these assertions seriously. The court remarked that it would put the appellant to task if the cited sources were proven to be fictitious or generated by AI.
The case is scheduled for further hearing on December 8.
For context, on July 8, the National Company Law Tribunal (NCLT) in Mumbai accepted insolvency petitions filed by Omkara Assets Reconstruction Pvt Ltd against Gstaad Hotels Pvt Ltd. Subsequently, on August 19, the National Company Law Appellate Tribunal (NCLAT) upheld the NCLT’s decision to admit these insolvency applications under Section 7 of the IBC against both Gstaad Hotels Pvt Ltd and Neo Capricorn Plaza Pvt Ltd.
The hotel’s promoters have appealed to the Supreme Court to overturn this ruling. The loans at the heart of the dispute originated from a financing package arranged by Piramal Finance on December 26, 2017, which included a Rs.450 crore term loan and a Rs.50 crore revolving credit facility to Gstaad Hotels, along with a Rs.100 crore term loan to Neo Capricorn.
Both companies later accessed additional funding through the Union government’s Emergency Credit Line Guarantee Scheme (ECLGS). Piramal transferred the debt to Omkara ARC on December 27, 2022, following which recall notices were issued on February 15, 2023, demanding Rs.666.53 crore from Gstaad Hotels and Rs.119.99 crore from Neo Capricorn.
Before the NCLAT, Raheja and another suspended director contended that there was no default as of November 15, 2022, claiming that withdrawals from the retention account distorted the financial figures and that the undisbursed amounts in the Debt Service Reserve Account (DSRA) should have been taken into account.
They also argued that both hotels were profitable assets and that a prior order from the NCLAT on January 8 precluded adverse findings.
The NCLAT dismissed these arguments, asserting that the NCLT had correctly evaluated the Cash Management Agreement, DSRA arrangements, ECLGS utilization, and bank statements on remand.
The Tribunal confirmed that a clear default had indeed occurred on November 15, 2022, taking into account a Rs743.71 crore one-time settlement proposal submitted by the promoters as an acknowledgment of liability.
This NCLAT ruling was subsequently challenged in the Supreme Court, with Omkara represented by Senior Advocate Neeraj Kishan Kaul.
Case Title: Deepak Raheja Vs Omkara Asset Reconstruction