Case at a Glance
The NCLT, Mumbai admitted a bank’s Section 7 insolvency petition against a corporate guarantor, and the NCLAT affirmed it — but both relied on Supreme Court ‘precedents’ that turned out to be non-existent, wrongly cited or quoted for paragraphs that do not exist. The Supreme Court declared a “zero-tolerance” position: a decision founded on fake, AI-generated material is “no decision in the eyes of the law.” It set aside both orders, restored the insolvency petition for a fresh decision within about two weeks, and directed the Bar Council of India to set up a committee to frame preventive principles and disciplinary action against lawyers who cite fake AI material.
Pan India Utilities Distribution Company Ltd. (PIUDCL) borrowed from Jammu and Kashmir Bank, and Essel Infraprojects Ltd. (EIL) gave a corporate guarantee for those facilities. PIUDCL defaulted and its accounts became non-performing assets. The bank filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 against EIL before the NCLT, Mumbai (RCP (IB) 6/MB/2023). On 28 August 2024 the NCLT admitted it, appointed an Interim Resolution Professional and declared a moratorium.
The appellant, a suspended director of EIL, appealed to the NCLAT, arguing that liabilities had moved to another company through a demerger and amalgamation and that a renewed sanction letter of 18 November 2017 omitted the guarantee. On 11 September 2025 the NCLAT dismissed the appeal, relying on clause 8 of the guarantee deed (which says the guarantee survives amalgamation) and on several Supreme Court decisions cited by the NCLT. Before the Supreme Court, senior counsel Madhavi Divan pointed out that those citations appeared to be fake and possibly AI-generated; the bank addressed only the merits.
The Key Question Before the Court
Can an insolvency admission order stand when the Tribunal and the Appellate Tribunal relied on non-existent or misattributed ‘precedents’ — and what must the Bar and Bench do about AI-generated fake citations?
“No decision at all”: why fake precedents vitiate an order
Justice Narasimha opened by noting this was “yet again a case where the Tribunal relied on non-existent, fake and hallucinated material.” The Court checked each authority. State Bank of India v. M/s Shree Ram Urban Infrastructure Ltd. carried a citation that actually belongs to M. Subramaniam v. S. Janaki; Everest Kento Cylinders Ltd. v. Union of India and Canara Bank v. N.G. Subbaraya Setty had correct citations but the quoted paragraphs did not exist; and the cases cited as ICICI Bank Ltd. v. Urban Infrastructure Real Estate Ltd., V.S. Dempo & Co. Ltd. v. Reliance Communications Ltd. and Sarbjit Singh v. Union Bank of India were non-existent. The Court observed that such material escaped scrutiny even at the appellate level because courts implicitly trust counsel’s citations.
The Court did not object to AI as such. It noted the growing use of AI to manage workloads, but warned that generative AI, unlike earlier technology, can replace thinking and reasoning, and that “if left unregulated, Artificial Intelligence may infiltrate our intellectual work ethic.” Control, it said, must come through public policy and enforceable rules, not judgments alone, and depends on the will of both Bar and Bench. On hallucinations, the Court was unconcerned with their technical cause: for adjudication, fake precedent is “invisible, insidious, and catastrophic by the time anyone notices.” A decision founded on such material “is no decision at all, and it amounts to subversion of the rule of law.”
What the Court Actually Held
- Citing AI-generated precedents without verification is misconduct by an advocate; a judge relying on such material commits a serious lapse, and the resulting decision is no decision in law even if the material influenced it only indirectly.
- Prohibition alone is not enough — “there must be a consequential action following accountability.” The Bar Council of India must constitute a committee to recommend a guiding principle to prevent fake AI citations and prescribe disciplinary action.
- The NCLT order of 28 August 2024 and the NCLAT judgment of 11 September 2025 were set aside, and the Section 7 application was restored to its original number.
- The NCLT must decide the application afresh, preferably within two weeks, with status quo maintained meanwhile; the Court expressed no opinion on the merits.
Why This Judgment Matters
- It is a reportable Supreme Court ruling squarely treating reliance on fabricated AI-generated precedent as a ground that voids an order, not a mere irregularity.
- It moves from warnings to accountability by tasking the Bar Council of India with framing disciplinary norms for lawyers.
- It reminds tribunals, which handle heavy dockets under the IBC, that they must independently verify every authority before relying on it.
What Should Advocates Take Away From the Judgment?
For Litigants
- If an order against you quotes a judgment you cannot find, check the citation and the paragraph — a fake authority can be a ground to set the order aside.
- Setting aside on this ground does not decide the merits: here the insolvency petition simply went back to the NCLT.
For Counsel
- Verify every case, citation and paragraph against an authentic source before filing; unverified AI output is treated as misconduct.
- Watch for the Bar Council of India’s committee recommendations and disciplinary norms.
- When the other side or the forum relies on doubtful authorities, point it out specifically, as counsel did here.
Key Takeaways
- A decision founded on fake or hallucinated precedent is “no decision in the eyes of the law.”
- The Court’s concern is not AI use as such but presenting or relying on fake material as genuine precedent.
- The Bar Council of India must form a committee on prevention and discipline for fake AI citations.
- The insolvency petition against the corporate guarantor was restored for a fresh, quick NCLT decision.
Frequently Asked Questions
Did the Supreme Court ban the use of AI by lawyers or judges?
No. The Court said the judgment does not restrict the proper use of AI; it targets presenting or relying on fake, unverified material as genuine precedent.
What happened to the insolvency case against Essel Infraprojects?
The NCLT and NCLAT orders were set aside, and the bank’s Section 7 application was restored before the NCLT, to be decided afresh, preferably within two weeks, with status quo meanwhile.
What is the Bar Council of India required to do?
Constitute a committee to recommend a guiding principle to prevent lawyers from submitting fake AI-generated material as precedent and to set out disciplinary action for violations.
Conclusion
The ruling treats the integrity of precedent as the foundation of adjudication. By voiding orders built on hallucinated case law and pushing the Bar Council towards enforceable discipline, the Supreme Court has made verification a non-negotiable duty for everyone in the courtroom.
Practical takeaway: Before citing or relying on any judgment, open the authentic text and confirm the case name, citation and paragraph — an order resting on a fake authority will not survive.
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