The Supreme Court of India on Thursday, 2 July 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 fake, non-existent, and hallucinated judicial precedents in its decision-making. The apex court declared a policy of 'zero tolerance' towards the use of such unverified AI-generated material in judicial proceedings.

What the Supreme Court Found

A Bench of Justice P.S. Narasimha and Justice Alok Aradhe held that a decision founded on fabricated or hallucinated AI-generated precedents was 'no decision in the eyes of law' and amounted to a subversion of the rule of law. The court found that several judgments cited by the NCLT were either entirely non-existent or contained AI-generated paragraphs wrongly attributed to genuine Supreme Court rulings.

'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 stated.

Orders Set Aside, Matter Restored to NCLT

The Justice Narasimha-led Bench set aside the NCLT's 28 August 2024 order and the NCLAT's 11 September 2025 judgment, restoring the insolvency proceedings to the NCLT for fresh adjudication. The tribunal has been directed to decide the matter afresh within two weeks, with parties required to maintain status quo in the interim. The Bench clarified it had expressed no opinion on the merits of the underlying dispute.

Background: The Essel Infraprojects Case

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, flagged that multiple NCLT-cited judgments were either non-existent or carried fabricated paragraphs. Jammu and Kashmir Bank subsequently filed an affidavit stating that its counsel had not cited the fake judgments and that the tribunal had relied on them based on its own research.

Court's Warning on AI in Adjudication

Stressing that AI can assist but cannot replace human judicial reasoning, the Supreme Court asserted 'total and absolute control over adjudication, with a human in the loop at every stage.' In a striking analogy, the Bench compared unchecked AI hallucinations in law to the release of methyl isocyanate — 'invisible, insidious, and catastrophic by the time anyone notices.'

The court ruled that even if 'an iota of fake or hallucinated AI-generated material enters the decision-making process,' the resulting order must be set aside, as it violates the sanctity of adjudication. Citing unverified AI-generated precedents was characterised as misconduct on the part of an advocate, while judicial reliance on such material was termed a 'serious lapse.'

Bar Council of India Directed to Act

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 BCI has been asked to prescribe guiding principles and disciplinary measures to prevent recurrences. Notably, the court's use of the phrase 'yet again' signals that this is not an isolated incident — it is at least the second publicly documented case of AI hallucination contaminating tribunal proceedings in India.

The ruling sets a significant institutional precedent at a time when AI tools are rapidly being adopted across the legal profession, and raises urgent questions about verification protocols in courts and tribunals nationwide.