SC Sets Aside Orders for Relying on Fake AI-Generated Citations

Source: Supreme Court 

Why in News? 

A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe set aside orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in Pooja Ramesh Singh v. Jammu and Kashmir Bank Ltd. (2026), after finding that both tribunals had relied on judicial precedents that were entirely fictitious and generated through Artificial Intelligence. The Court declared a zero-tolerance approach toward the use of unverified AI-generated material in judicial proceedings and directed the Bar Council of India to frame guidelines for the responsible use of such technology by legal practitioners. 

What was the Background of the Case? 

• Jammu and Kashmir Bank Ltd. had filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process against Essel Infraprojects Ltd. 
• The NCLT admitted the application, and the NCLAT subsequently upheld that order in appeal. 
• The Appellant, a suspended director of Essel Infraprojects Ltd., challenged both orders before the Supreme Court. 
• It was pointed out that the reasoning of the tribunals rested on six judicial citations that were either wholly non-existent or contained fictional paragraphs falsely attributed to genuine judgments. 
• The Appellant contended that the entire adjudicatory process stood vitiated since the tribunals had failed to verify the authenticity of the precedents relied upon.

What were the Court's Observations? 

• On the nature of the citations: The Court confirmed that the precedents relied upon by the tribunals were AI-hallucinations, that is, material that appeared to be genuine judicial authority but did not exist in reality. 
• On the effect of relying on fabricated material: The Court held that a judgment or order founded even partly on such fake and hallucinated material cannot be treated as a valid decision, since it amounts to a subversion of the rule of law. 
• On the gravity of the lapse: The Court drew a stark analogy, comparing the unchecked spread of fabricated legal material to the release of a toxic industrial gas, describing it as invisible and damaging by the time its effects are discovered. 
• On professional responsibility: The Court observed that it is professional misconduct for an advocate to cite judgments without verifying their authenticity, and equally a serious lapse for a judge to rely on such unverified material while arriving at a determination. 
• On the role of Artificial Intelligence in adjudication: While acknowledging the efficiency that AI tools can bring to legal work, the Court cautioned against treating AI as a substitute for independent judicial reasoning and decision-making, rather than as a mere aid. 
• On the need for human oversight: The Court emphasised that human actors must retain complete control at every stage of adjudication, so as to preserve the disciplined and deliberate reasoning process that distinguishes right from wrong in judicial decision-making. 
• On accountability going forward: The Court directed the Bar Council of India to constitute an expert committee to frame clear guidelines on the responsible use of technology by legal practitioners, including disciplinary consequences for advocates who cite fabricated precedents. 
• On relief granted: The Section 7 application was restored to its original number before the NCLT, with directions to proceed to a fresh determination within two weeks, uninfluenced by the previously relied-upon fabricated citations. 

What is Section 7 of the Insolvency and Bankruptcy Code, 2016? 

Section 7 IBC – Initiation of Corporate Insolvency Resolution Process by Financial Creditor: 

• Section 7 empowers a financial creditor, either by itself or jointly with other financial creditors, to file an application before the Adjudicating Authority (NCLT) for initiating the Corporate Insolvency Resolution Process against a corporate debtor, upon occurrence of a default. 
• The application must be filed in the prescribed form, along with records of the default, the name of a proposed interim resolution professional, and any other information as specified. 
• The Adjudicating Authority is required to ascertain the existence of a default from the records of an information utility or other evidence furnished by the financial creditor, and must admit or reject the application within the prescribed timeline. 
• Where the Adjudicating Authority is satisfied that a default has occurred and the application is complete, it shall, by order, admit the application, subject to no disciplinary proceeding being pending against the proposed resolution professional.