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New Delhi, July 02: Supreme Court sets aside NCLT judgment for relying on hallucinated AI-generated citations. The Court also warned that such fake AI-generated precedents are “invisible, insidious and catastrophic” to judicial determination & set aside a National Company Law Tribunal (NCLT) judgment on Essel Infraprojects insolvency after finding that the tribunal had relied on non-existent, fake and hallucinated judgments/ precedents generated through artificial intelligence (AI) tools titled Pooja Ramesh Singh Vs J&K Bank.
A Bench of Justices PS Narasimha and Alok Aradhe held that such reliance on hallucinated material strikes at the integrity of adjudication and its processes and courts must adopt a zero-tolerance approach when dealing with fake AI precedents produced by lawyers without verification. The same amounts to misconduct on the part of the advocate, the Court held.
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 Bench 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,” the Court said.
The Court clarified that it was not dealing with the cause of hallucinations or the technical process for resolving them, which it said was for engineers and scientists to deal with. For courts and lawyers, the concern was the production of fake and non-existing material and its use as precedents in law.
The case arose from a plea filed by suspended Director Pooja Ramesh Singh against orders of NCLT admitting Essel Infraprojects to corporate insolvency resolution process on a Section 7 application filed by Jammu and Kashmir Bank Limited.
The NCLT Mumbai Bench had, on August 28, 2024, admitted the insolvency plea for a claimed debt of ₹87.43 crore. The NCLAT upheld the order on September 11, 2025.
The debt arose from a ₹200 crore facility granted by Jammu and Kashmir Bank to Pan India Utilities Distribution Company Limited.
The facility was secured by a corporate guarantee from Essel Infraprojects and a mortgage over land at Gorai, Borivali in Mumbai. Essel Infraprojects argued before the NCLT that it was no longer liable since the relevant assets and liabilities had moved to other group entities through a demerger and later an amalgamation approved by the Bombay High Court in 2014.
The NCLT Bench comprising Judicial Member Rita Kohli and Technical Member Madhu Sinha rejected this argument and held that the corporate guarantee continued to bind Essel Infraprojects.
However, the Supreme Court found that the Tribunal had relied on non-existing and hallucinated material as precedents in support of its judgment. 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 Supreme Court said.
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