The Supreme Court set aside NCLT and NCLAT orders in the Essel Infraprojects insolvency case after finding reliance on fake AI-generated judicial precedents. The Court adopted a zero-tolerance approach, holding that citing unverified AI-generated judgments amounts to professional misconduct by advocates.
In a significant ruling on the use of artificial intelligence in judicial proceedings, the Supreme Court on Thursday set aside the orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in the insolvency proceedings involving Essel Infraprojects after finding that the NCLT had relied on non-existent, fake and AI-generated “hallucinated” judicial precedents while deciding the case.
A Bench comprising Justices P.S. Narasimha and Alok Aradhe held that reliance on fabricated judicial authorities fundamentally undermines the integrity of the judicial process and declared that courts must adopt a “zero-tolerance” approach towards the use of unverified AI-generated legal precedents.
The Bench said,
“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,”
The Court observed that the responsibility does not rest only with advocates. Judges are equally expected to ensure that every authority relied upon is genuine and legally authentic before incorporating it into a judicial determination.
The Court stated,
“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. 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,”
Accordingly, the Supreme Court quashed both the August 28, 2024 judgment of the NCLT and the September 11, 2025 decision of the NCLAT, which had affirmed the tribunal’s findings.
The Court said,
“For the reasons to follow, we have set aside the judgement of the NCLT, as well as the (NCLAT) judgement in opinion, to affirm and maintain the integrity of the adjudication and its processes,”
Background of the Dispute
The case arose from a challenge filed by Pooja Ramesh Singh, the suspended director of Essel Infraprojects, against the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code. The insolvency proceedings had been initiated on the application of Jammu and Kashmir Bank Limited, which claimed a default of approximately Rs 87.43 crore.
The dispute originated from a Rs 200 crore credit facility extended by Jammu and Kashmir Bank to Pan India Utilities Distribution Company Limited. Essel Infraprojects had executed a corporate guarantee in favour of the bank and also created a mortgage over land situated at Gorai, Borivali in Mumbai as security for the loan.
The company challenged the insolvency proceedings, contending that the corporate guarantee was no longer enforceable. However, the NCLT Bench comprising Judicial Member Rita Kohli and Technical Member Madhu Sinha rejected the contention and held that the guarantee continued to remain valid. The NCLAT subsequently affirmed the tribunal’s decision.
While examining the record, the Supreme Court discovered that the NCLT had relied upon judgments that did not actually exist and were apparently generated through artificial intelligence tools. The Bench observed that such hallucinated precedents had found their way into the judicial reasoning, raising serious concerns about the integrity of adjudication.
The Court said,
“So far as the precision on facts are concerned, we set aside the judgement of the NCLT, as well as NCLAT, and ask the tribunals to decide them on the facts,”
The matter has now been remitted for fresh consideration on the basis of actual facts and legally recognised precedents.
The judgment also contains extensive observations on the growing role of artificial intelligence in the legal profession and judicial system. The Court acknowledged that AI is rapidly becoming an important technological tool capable of assisting professionals in research, drafting and data processing. However, it cautioned that adjudication must remain entirely under human supervision.
The judgment stated,
“What is significant for our decision-making is our resolve to adopt artificial intelligence technology in the aid of adjudication, while at the same time asserting, and declaring total and absolute control over adjudications, to the human in the loop, at every stage,”
The Bench noted that the increasing workload faced by lawyers and judges may naturally encourage the use of AI tools.
The Court observed,
“The result can be gratifying, even inspiring,”
However, it warned that excessive dependence on AI could gradually replace independent legal reasoning and intellectual discipline.
The Court said,
“The story of AI, as it is unfolding, is, however, different. In fact, transformative as it is, not just an aid to assist us in our work, but it is an alternative to our own thinking, reasoning, and even decision making,”
The Bench emphasised that technology such as e-filing, virtual hearings and digitisation has significantly improved court administration, but artificial intelligence occupies a fundamentally different position because it has the potential to directly influence legal reasoning.
The Supreme Court stressed that AI should function only as an assistive tool and must never replace independent judicial application of mind.
“This is where we need to be extra cautious, as unregulated use of AI will insidiously enter legal practice and process of justice, decision making and decision making itself.”
According to the Court, the principal concern for the legal system is not the technological mechanism behind AI hallucinations but the danger posed by fabricated legal authorities being cited before courts.
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It added,
“This byproduct, that is AI, that is the production of fake, non-existing, and hallucinated material, and its utilisation, as precedents in law, is like release of methyl isocyanide with the province of law and justice. Invisible, insidious, and catastrophic, by the time anyone notices, it is not only contaminant, but takes away the very lifeline of judicial determination,”
The Bench likened the spread of fabricated AI-generated precedents to an invisible toxic leak that threatens the very foundation of justice by contaminating judicial reasoning before anyone detects the error.
Recognising the broader implications of artificial intelligence in legal practice, the Supreme Court directed the Bar Council of India (BCI) to constitute an expert committee to study the issue and suggest appropriate safeguards regarding the use of AI by advocates.
The Court observed that while artificial intelligence offers enormous possibilities for improving efficiency, strict verification protocols and ethical standards are essential to prevent fabricated legal authorities from entering court records and judicial decisions.
Senior Advocate Madhavi Divan represented appellant Pooja Ramesh Singh and was assisted by advocate Vishesh Kalra. Jammu and Kashmir Bank was represented by advocate Sumesh Dhawan along with a legal team from Dua Associates led by advocate Sanjana Dua.
Case Title: Pooja Ramesh Singh vs. Jammu and Kashmir Bank
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