THE BEYOND OBITER LAW BLOG: Legal News
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In a landmark ruling addressing the growing use of artificial intelligence in legal proceedings, the Supreme Court has set aside orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) after finding that both forums relied on non-existent, AI-generated judicial precedents while deciding an insolvency dispute. Emphasising that adjudication must remain under human control, the Court held that decisions founded on hallucinated AI-generated authorities cannot be sustained in law.
The judgment was delivered by a Bench comprising Justice P. S. Narasimha and Justice Alok Aradhe.
The dispute arose from insolvency proceedings initiated by Jammu and Kashmir Bank Ltd. under Section 7 of the Insolvency and Bankruptcy Code against Essel Infraprojects Ltd., which had furnished a corporate guarantee for credit facilities extended to another company. The NCLT admitted the insolvency application in August 2024, and the NCLAT affirmed the order in September 2025.
Before the Supreme Court, it was argued that the tribunals had relied upon several judicial precedents that either did not exist or did not support the legal propositions attributed to them. An affidavit placed before the Court confirmed that the cited authorities could not be traced in any recognised legal database, exposing them as fabricated or AI-generated “hallucinated” citations.
Accepting the submissions, the Supreme Court held that judicial decisions based on fictitious authorities strike at the very foundation of the justice delivery system. Consequently, it set aside the orders of both the NCLT and the NCLAT and remanded the matter to the NCLT for fresh consideration uninfluenced by the fabricated citations.
The Court observed that while artificial intelligence has immense potential to assist judges and lawyers, it cannot replace judicial reasoning or decision-making. Stressing that adjudication must always remain under human supervision, the Bench stated that AI should only function as an aid, with “total and absolute control” remaining with human decision-makers at every stage.
In one of the strongest observations of the judgment, the Court compared AI hallucinations in legal adjudication to the release of methyl isocyanate gas, describing fabricated AI-generated precedents as an invisible but catastrophic threat to the administration of justice.
The Bench observed:
“For us, that is, for those who are in the province of adjudication and determination of disputes, this by-product of AI, that is the production of fake, non-existing and hallucinated material and its utilization as precedence in law, is like the release of “methyl isocyanide” in the province of law and justice, invisibly insidious and catastrophic by the time anyone notices.”
The Court declared that there must be zero tolerance for the production, citation or reliance upon AI-generated judicial precedents without proper verification.
It held that an advocate who cites AI-generated fake judgments without verifying their authenticity commits professional misconduct. Equally, a judge who relies upon hallucinated AI-generated material while deciding a case commits a serious lapse that undermines the integrity of the judicial process.
The Bench categorically ruled that any decision based on such fabricated authorities is “no decision in the eyes of law.” It clarified that such orders are liable to be set aside even if only an “iota” of fake or hallucinated material has influenced the reasoning, since the sanctity of adjudication cannot be compromised.
Recognising that artificial intelligence is becoming increasingly prevalent in legal practice, the Court also directed the Bar Council of India to constitute an expert committee to examine the challenges arising from AI in adjudication and to formulate guiding principles governing its responsible use. The Court further observed that the Bar Council should prescribe appropriate disciplinary consequences for violations involving the citation of fabricated AI-generated authorities.
At the same time, the Bench clarified that the judgment is not an indictment of artificial intelligence itself. Rather, it is confined to the misuse of AI through the presentation or reliance upon fake or hallucinated judicial precedents as though they were authentic court decisions.
Accordingly, the Supreme Court remanded the insolvency proceedings to the NCLT for fresh adjudication based solely on genuine legal authorities and the evidence on record.