Summary
The NCLT admitted a Section 7 IBC application relying on judgments that were non-existent or carried fabricated paragraphs, apparently generated by AI, and the NCLAT affirmed without noticing. The Supreme Court held that a decision resting on fake or hallucinated precedents is no decision in law, set aside both orders, restored the Section 7 application for fresh decision, and directed the Bar Council of India to frame norms on advocates citing such material.
Issues
- What is the effect on a judgment of an adjudicating authority's reliance on fake, non-existent or AI-hallucinated material presented as precedent?
- Whether the NCLT admission order and the NCLAT order affirming it, which relied on such material, could stand.
- What accountability measures should follow the citation of unverified AI-generated precedents by the Bar and the Bench.
Provisions considered
- Section 7, Insolvency and Bankruptcy Code, 2016The financial creditor's application against the corporate guarantor had been admitted on finding debt and default. After setting aside the admission and appellate orders, the Court restored the application to its original number for fresh decision on merits, expressing no view on merits, to be disposed of preferably within two weeks. (¶¶ 11, 12, 18, 19, 20)
- Section 14, Insolvency and Bankruptcy Code, 2016Noted only as the moratorium declared on admission; the admission order carrying it was set aside and status quo was directed pending fresh disposal. (¶¶ 12, 18, 20)
Held
- Courts must adopt zero tolerance towards producing, citing or using AI-generated precedents without verification. An advocate citing such material without verification commits misconduct, and a judge relying on it commits a serious lapse. (¶ 7)
- A decision that relies on fake or hallucinated material as precedent is no decision in the eyes of law, whether the material had a direct or indirect bearing on the outcome; even an iota of such material entering the decision-making process requires the decision to be set aside, as it subverts the rule of law. (¶¶ 7, 17)
- The ruling does not restrict the rightful use of AI; it is directed at presenting or relying on fabricated material as court precedent. AI may aid adjudication only with total human control at every stage, and comprehensive regulation is a matter for policy and rules rather than judicial declaration. (¶¶ 1, 5, 7)
- On independent verification, the six authorities relied on by the NCLT were either non-existent citations, wrong citations, or genuine citations with non-existent paragraphs; the respondent bank's affidavit showed they were not cited by its counsel but came from the authority's own research, and the NCLAT failed to detect them. Both orders were therefore unsustainable. (¶¶ 15, 16, 17, 18)
- The Bar Council of India was directed to constitute a committee and prescribe guiding principles to prevent advocates from submitting fake or hallucinated material as precedent, along with the disciplinary consequences of violating them. (¶¶ 8, 9)
Result
Appeal disposed of; NCLT order dated 28.08.2024 and NCLAT order dated 11.09.2025 set aside; Section 7 application restored for decision on merits, preferably within two weeks, with status quo meanwhile; Bar Council of India directed to frame norms.