The Supreme Court on Thursday set aside insolvency orders against Essel Infraprojects Ltd after finding that the tribunal had relied on fake and AI-generated judicial precedents, in what is being seen as one of India's most significant rulings on the use of artificial intelligence in the legal system.
According to media reports, the apex court quashed orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), which had admitted Essel Infraprojects into the corporate insolvency resolution process. The matter has now been remanded to the NCLT's Mumbai bench for a fresh adjudication based solely on verified facts and applicable law.
The dispute relates to insolvency proceedings initiated by Jammu & Kashmir Bank against Essel Infraprojects, which had acted as a corporate guarantor for loans extended to another company.
The issue came to light after senior advocate Madhavi Divan, appearing for Essel Infraprojects, argued that several judicial precedents relied upon by the NCLT either did not exist or contained passages that were never part of the original judgments.
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An independent verification by the Supreme Court confirmed the claim. It found that some citations referred to non-existent judgments, while others cited genuine Supreme Court rulings but attributed fabricated paragraphs to them.
A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe said courts must adopt a "zero tolerance" approach to fake AI-generated material.
The bench observed that using hallucinated AI content without proper verification poses a serious threat to the integrity of the judicial process.
The court clarified that it is not opposed to the use of AI in legal practice or within the judiciary, but stressed that AI should remain an assistive tool rather than a substitute for judicial reasoning.
"It is not just an aid to assist us in our work, but is an alternative to our own thinking, reasoning and even decision-making," the bench said while cautioning against excessive reliance on AI.
The judges added that AI can be used in courts only under complete human supervision at every stage.
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The Supreme Court also directed the Bar Council of India to constitute a committee to examine the misuse of AI in legal proceedings and recommend safeguards.
The case originates from a Section 7 insolvency application filed by Jammu & Kashmir Bank against Essel Infraprojects. The NCLT's Mumbai bench admitted the plea on Aug. 28, 2024, a decision later upheld by the NCLAT on Sept. 11, 2025.
The judgment also referred to previous instances of AI-generated inaccuracies in Indian courts. In January 2026, the Andhra Pradesh High Court flagged non-existent case laws cited by a trial court after they were generated by an AI tool.
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