‘Citation doesn’t exist’: The case behind SC’s AI-hallucination order & draft rules released before

THe sublime margaret court on th go down apart the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in an insolvency case, after finding that the rulings were based on fake, non-existent or AI-generated precedents.A bench of Justices PS Narasimha and Alok Aradhe remanded the matter to the NCLT for fresh consideration, directing that it proceed uninfluenced by the ‘hallucinated’ citations. Hallucination is a term used in tech parlance to refer to information fabricated by artificial intelligence systems.The court on Thursday held that a judicial decision founded on non-existent precedents cannot stand, and that any ruling tainted by even “an iota” of such material is “no decision in the eyes of law”, regardless of whether or not the fake precedent influenced the final outcome.In its order, the bench compared the threat posed by AI-generated precedents to that of methyl isocyanate, the gas that killed thousands in the 1984 Bhopal gas tragedy, calling such material “invisible, insidious, and catastrophic by the time anyone notices”. The court said such material “contaminates the judicial process” and strips judicial determination of “its very lifeblood”.The bench subsequently directed the Bar Council of India (BCI) to set up a committee to examine lawyers placing fake or hallucinated AI-generated material before courts as genuine precedent, and to frame guiding principles with disciplinary consequences for violations. It said courts must adopt a “zero tolerance” policy on citing or relying on such material, and that an advocate who cites hallucinated judgments commits professional misconduct, while a judge who relies on them commits a serious lapse.Also read: Real test of AI regulations: Reducing pendency of court casesThe case that was aboutThe appeal before the top court arose from insolvency proceedings that Jammu and Kashmir Bank Ltd had initiated under Section 7 of the Insolvency and Bankruptcy Code (IBC) against Essel Infraprojects Ltd (EIL).EIL had executed a corporate guarantee for credit facilities extended by the bank to Pan India Utilities Distribution Company Ltd (PIUDCL). When PIUDCL defaulted on its repayment schedule and its accounts were classified as non-performing assets, the bank moved against EIL as guarantor.NCLT Mumbai admitted the bank’s Section 7 application on August 28, 2024, recording a default of ₹87.43 crore, appointing an interim resolution professional and declaring a moratorium under Section 14 of the IBC.The suspended director of EIL appealed to NCLAT, arguing that the tribunal had failed to account for the transfer of the company’s liabilities through a scheme of demerger and subsequent amalgamation, and that a renewed sanction letter dated November 18, 2017, did not mention the guarantee, which meant it stood relinquished.NCLAT rejected this argument on September 11, 2025, holding that the guarantee deed itself said the guarantee would not lapse in the event of the corporate debtor’s absorption or amalgamation with another company, and upheld the NCLT order.Before the Supreme Court, senior advocate Madhavi Divan, appearing for the appellant, argued that several of the judgments the NCLT had relied upon either did not exist or contained passages no law report had recorded. The counsel for the bank filed an affidavit saying that its lawyers had not cited those judgments, and that the tribunal appeared to have introduced them.Also read: Justice depends on human wisdom, not AIThe precedents under scannerThe NCLAT order recorded that the NCLT, in rejecting the appellant’s arguments, had relied on six precedents.The Supreme Court’s own examination flagged these issues:State Bank of India v. Shree Ram Urban Infrastructure Ltd, cited as 2020 SCC OnLine SC 341 (NCLT order, paragraph 44): The citation number belongs to a different, genuine Supreme Court judgment, and the paragraph attributed to the case does not exist.Everest Kento Cylinders Ltd v. Union of India, (2015) 2 SCC 1 (paragraph 45): Citation is correct, but the paragraph relied upon does not exist in the judgment.ICICI Bank Ltd v. Urban Infrastructure Real Estate Ltd, (2019) 16 SCC 528 (paragraph 47): Citation does not exist.VS Dempo & Co Ltd v. Reliance Communications Ltd, (2021) 10 SCC 176 (paragraph 49): Citation does not exist.Canara Bank v. NG Subbaraya Setty & Anr, (2018) 16 SCC 228 (paragraph 51): Citation is correct, but the paragraph attributed to it does not exist.Sarbjit Singh v. Union Bank of India, (2022) 7 SCC 464 (paragraph 53): Citation does not exist.The court noted that some citations referred to judgments that never existed, others cited genuine cases but attributed fabricated passages to them, and at least one citation carried the name of an entirely different Supreme Court decision. It observed that the fake precedents had gone undetected even at the NCLAT stage, and that courts cannot realistically verify every citation placed before them.A pattern flagged beforeThe July 2 order is not the Supreme Court’s first intervention on AI-fabricated material in litigation this year.On February 27, the same bench of justices Narasimha and Aradhe took cognisance of a trial court relying on AI-generated, non-existent verdicts, in a case that had reached the top court through a challenge to a January order of the Andhra Pradesh high court.That dispute concerned objections to an advocate-commissioner’s report in a suit for injunction. The trial court had dismissed those objections in an order relying on fake judgments, and the high court, though it recorded “a word of caution” after realising the judgments were AI-generated, went on to decide the case on merits and dismissed the revision petition regardless.The bench held then that a decision based on such non-existent judgments “is not an error in the decision making” but amounts to misconduct with legal consequences.Before that, on February 17, a bench headed by Chief Justice of India Surya Kant flagged a broader trend of lawyers filing AI-drafted petitions citing non-existent judgments — including one styled “Mercy vs Mankind” — while hearing a public interest litigation on political speech guidelines.Last month, the Supreme Court released draft ‘Regulations for Use of Artificial Intelligence (AI) in Courts, 2026’ for public consultation, applicable to the Supreme Court, high courts, district courts, tribunals and statutory adjudicatory bodies.The draft, HT had reported, rests on a principle of human primacy and judicial independence, under which AI must remain “strictly subservient” to judges and cannot decide cases, pass sentences, assess bail eligibility, predict recidivism or evaluate witness credibility.It permits AI for legal research, citation verification, summarisation, translation, transcription, drafting assistance and case administration, while requiring disclosure whenever AI has been used to prepare a filing — with responsibility for any resulting error resting on the lawyer or litigant, not the technology.The draft also proposes a national governance architecture, including bodies and committees for developing standards to verify generative outputs.