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Informist, Thursday, Jul. 2, 2026

 

NEW DELHI – The Supreme Court Thursday set aside orders passed by the Mumbai bench of the National Company Law Tribunal and the National Company Law Appellate Tribunal to admit Essel Infraprojects Ltd. into insolvency for relying on non-existent, fake and hallucinated materials and verdicts, generated through artificial intelligence. "...for those in the province of adjudication and determination of disputes, this by-product of AI, i.e., the production of fake, non-existent, and hallucinated material and its utilisation as precedents in law, is like the release of methyl isocyanate in the province of law and justice: invisible, insidious, and catastrophic by the time anyone notices. It not only contaminates but takes away the very lifeblood of judicial determination," said the apex court.

 

Judicial process and the judgment under challenge were tainted by the use of materials that are said to be precedents, but in reality, they were unreal, fake, and did not exist at all, said a bench of Justice P.S. Narasimha and Justice Alok Aradhe. A decision of a court or an adjudicating authority based on material that is fake and hallucinated is no decision at all, and amounts to subversion of the rule of law, the court said. Such a decision is unsustainable and has to be set aside at the earliest, it said. 

 

The top court noted that those fake materials were not cited by lawyers, but were obtained through independent research by the Mumbai tribunal itself. "What about the appellate tribunal? The fake, non-existent judgments escaped scrutiny by the first statutory appellate tribunal. Today's courts and tribunals implicitly trust lawyers when referring to precedents cited before them. Imagine the hardship of a situation in which the court must verify the authenticity of each judgment cited by an advocate," the court said. The apex court asked the Mumbai tribunal to decide afresh Jammu & Kashmir Bank's insolvency plea against Essel Infraprojects Ltd., a company promoted by media baron Subhash Chandra.

 

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 misconduct on the part of an advocate to cite such judgments without verification, said the apex court. Equally, it is a serious lapse if a judge relies on such a fake or hallucinated AI-generated material as precedents in support of the determination, said the court. "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," said the court.

 

It is absolutely necessary to maintain integrity in decision-making, and the court reiterates and declares zero tolerance for the Bar as well as the Bench to cite, refer to, or rely on such material, said the bench. It also clarified that its judgment will have no bearing on the rightful use of AI, but on the presentation or reliance on fake or hallucinated material as if it were a court precedent, it said. As far as the responsibility of the bar is concerned, the apex court directed the Bar Council of India, the apex statutory body, to constitute a committee and deliberate on this issue of members of the bar submitting such fake material before the court as if they are precedents of law. The Bar Council of India must take up this issue with utmost seriousness, deliberate earnestly, and prescribe a guiding principle to prevent such occurrences, along with the disciplinary action that will follow a violation of the norms, said the court.

 

The bench said that dependency on technology has never been a problem for the dispensation of justice, as courts have seamlessly absorbed technologies and made them an integral part of court systems. The story of AI, as it is unfolding, is, however, different and transformative, as it is not just an aid to assist the court in its work, but an alternative to a judicial officer's own thinking, reasoning and even decision making, said the bench. This is where one needs to be extra cautious, as unregulated use of AI will insidiously enter legal practice, the process of judicial decision-making and decision-making itself, it said. If left unregulated, artificial intelligence may infiltrate one's intellectual work ethic and, before long, render the institution dependent on the technology's vast capabilities, it added.

 

In 2013, the bank had sanctioned a long-term working facility of INR 2 billion to Pan India Utilities Distribution Co. Ltd. The loan to Pan India was secured by a corporate guarantee given by Essel Infraprojects with mortgage over a piece of land in Mumbai owned by the latter. The loan was renewed in 2017.

 

Thereafter, Pan India defaulted in repayment of installments agreed by it with the bank. Pan India had unpaid claims of INR 699.77 million as on 2019 with interest of INR 173.65 million. Consequently, the bank sent a demand notice to Pan India for the unpaid dues. In its reply, Pan India admitted the debt and requested for further time to repay it.

 

Jammu & Kashmir Bank issued a letter to Essel Infraprojects with respect to the outstanding loan of Pan India. After no reply from Essel Infraprojects, the bank moved the Mumbai tribunal to start insolvency proceedings against the company. In 2024, the Mumbai tribunal admitted the bank's insolvency plea against Essel Infraprojects for an unpaid amount of INR 874.32 million. The Mumbai tribunal's order was upheld by the appellate tribunal in September, 2025.

 

In its appeal to the apex court, Pooja Ramesh Singh, the suspended director of Essel Infraprojects, argued that the citations or judgments relied upon by the Mumbai tribunal to arrive at its findings, as upheld by the appellate tribunal, were fake and non-existent, probably AI-generated. Even where case citations are accurate, the excerpted paragraphs from the judgments are not traceable to those judgments in law reports, said Singh. 

 

At 1149 IST, shares of Jammu & Kashmir Bank were up 3.7% at INR 161.98 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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