The Supreme Court on Thursday struck down an order from the National Company Law Tribunal (NCLT) after finding it was built on six AI-hallucinated judgments. The ruling, which declared such decisions "no decision at all," marks a sharp escalation in the judiciary's response to fake citations and carries direct consequences for legal practice.
The six hallucinated judgments
Three of the six citations did not exist at all. The NCLT order referenced ICICI Bank Ltd v Urban Infrastructure Real Estate Ltd (2019), V S Dempo & Co Ltd v Reliance Communications Ltd (2021), and Sarbjit Singh v Union Bank of India (2022), none of which are genuine cases. Two others - Everest Kento Cylinders Ltd v Union of India (2015) and Canara Bank v N G Subbaraya Setty (2018) - were real decisions, but the passages quoted in the NCLT order do not appear in those judgments. The sixth citation, State Bank of India v M/s Shree Ram Urban Infrastructure Ltd, corresponded to a completely different case and contained no such quoted text.
The tribunal relied on these citations to reject nearly every defence raised by Essel Infraprojects Ltd in a corporate insolvency proceeding. Under a 2013 guarantee, Essel Infraprojects had agreed to repay a Rs 200 crore loan extended by Jammu and Kashmir Bank to Pan India Utilities Distribution Company Ltd if the borrower defaulted. When the bank initiated insolvency proceedings against Essel Infraprojects as guarantor, the company argued that liabilities had shifted via a court-approved demerger and amalgamation in 2014, that a renewal letter omitted the guarantee, and that the bank had later sought a fresh guarantee from another entity.
For each of those arguments, the NCLT invoked AI-generated authority. On the demerger point, the tribunal quoted a non-existent judgment as holding that "a general corporate guarantee remains enforceable even if there is a restructuring of the corporate structure, provided the underlying debt is not discharged." On the bank's decision to obtain additional security, another fake passage said such conduct "does not invalidate the original guarantee when additional security is sought." Jammu and Kashmir Bank later confirmed in an affidavit that its counsel had not cited any of the six judgments and that the material appeared to have been sourced by the tribunal's "own research." The National Company Law Appellate Tribunal (NCLAT) upheld the order without checking whether the cases existed.
The court's warning: 'methyl isocyanate in law'
A bench of Justices P S Narasimha and Alok Aradhe did not mince words. In its July 2 judgment, the court observed that while the use of AI judgments could be "gratifying, even inspiring," the technology may eventually "infiltrate our intellectual work ethic and before long, render us dependent on its vast capabilities." The judges then drew an unusually direct comparison:
"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."
A decision built on fabricated case law, the court said, "is no decision at all" and must be set aside even if "an iota of fake or hallucinated material enters the decision-making process." The ruling directs the Bar Council of India to constitute a committee to examine the use of AI in litigation, and states that an advocate citing AI-generated authorities without verification would amount to professional misconduct.
The previous case and sterner consequences
The same bench had confronted a similar situation in February 2026 in Gummadi Usha Rani v Sure Mallikarjuna Rao, where an Andhra Pradesh trial court relied on four AI-generated, non-existent judgments. There the high court had merely recorded "a word of caution," but the Supreme Court went further, calling the issue one of "considerable institutional concern." It held that "a decision based on such non-existent and fake alleged judgments is not an error in the decision-making. It would be a misconduct and legal consequence shall follow."
The NCLT order has been struck down and the parties directed to maintain status quo until the tribunal decides the insolvency petition afresh. The matter returns to the NCLT with clear instructions to decide the case without reference to fabricated authority. For legal professionals who rely on AI tools in research and drafting, the ruling highlights the risks of unverified AI-generated content - a central topic in resources on AI for Legal.
Why this matters for legal professionals
The judgment removes any ambiguity: citing a hallucinated case is not a research error - it is misconduct with professional consequences. The Bar Council committee cannot be ignored, and advocates must now treat AI-generated output as starting material that requires manual verification against primary sources. The practical risk extends beyond individual cases; a lawyer whose citation inventory includes even one fake authority exposes the entire submission to rejection and exposes themselves to disciplinary action. Verification must become a step in every workflow that touches AI.
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