Pooja Ramesh Singh v. J&K Bank
“Zero Tolerance for AI Hallucinations: A Decision Resting on Fake Precedents Is No Decision at All”
TL;DR
The Supreme Court set aside the orders of the NCLT (28.08.2024) and the NCLAT (11.09.2025) because the NCLT had relied on non-existent, fake and AI-hallucinated judgments, and the NCLAT had repeated them without scrutiny. The Court declared zero tolerance for citing or relying on AI-generated precedents without verification, calling it misconduct for an advocate and a serious lapse for a judge, and said a decision tainted by even an iota of fake material is no decision in the eyes of the law. It directed the Bar Council of India to constitute a committee on the issue. The Section 7 insolvency application was restored to its original number for fresh decision on merits, preferably within two weeks, with status quo maintained meanwhile. The Court expressed no opinion on the merits of the insolvency dispute.
The Bottom Line
Courts and tribunals cannot decide cases using made-up precedents, whether they came from AI or anywhere else. The Supreme Court held that a judgment resting on fake or hallucinated authorities is unsustainable and must be set aside, while making clear that this does not bar the rightful use of AI. The Bar Council of India was asked to frame guidance and disciplinary consequences for lawyers who submit unverified AI material. The insolvency case itself goes back to the NCLT to be decided afresh.
Case Timeline
The journey from FIR to Supreme Court verdict
Renewed Sanction Letter
A renewed sanction letter dated 18.11.2017 did not mention the corporate guarantee, which the appellant later relied on to argue that the guarantee had been relinquished.
Renewed Sanction Letter
A renewed sanction letter dated 18.11.2017 did not mention the corporate guarantee, which the appellant later relied on to argue that the guarantee had been relinquished.
NCLT Admits Section 7 Application
The NCLT, Mumbai admitted the Bank's Section 7 IBC application against EIL, appointed an Interim Resolution Professional and declared a Section 14 moratorium.
NCLT Admits Section 7 Application
The NCLT, Mumbai admitted the Bank's Section 7 IBC application against EIL, appointed an Interim Resolution Professional and declared a Section 14 moratorium.
NCLAT Dismisses Appeal
The NCLAT dismissed Company Appeal (AT) (Insolvency) No. 1808 of 2024 and repeated the NCLT's reliance on the cited judgments.
NCLAT Dismisses Appeal
The NCLAT dismissed Company Appeal (AT) (Insolvency) No. 1808 of 2024 and repeated the NCLT's reliance on the cited judgments.
Supreme Court Sets Aside NCLT and NCLAT Orders
The Supreme Court held the orders unsustainable for reliance on fake and hallucinated precedents, restored the Section 7 application to its original number and directed fresh disposal.
Supreme Court Sets Aside NCLT and NCLAT Orders
The Supreme Court held the orders unsustainable for reliance on fake and hallucinated precedents, restored the Section 7 application to its original number and directed fresh disposal.
The Story
The appellant, Pooja Ramesh Singh, is a suspended director of Essel Infraprojects Ltd. (EIL), the corporate debtor. EIL was the corporate guarantor of the original borrower, Pan India Utilities Distribution Company Ltd. (PIUDCL), which had availed loan facilities from Jammu and Kashmir Bank Limited (Respondent No. 1). To secure these facilities, EIL executed a corporate guarantee. PIUDCL later faced severe financial stress, failed to maintain its repayment schedules, and its loan accounts were classified as non-performing assets.
Following the continuing defaults, the Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT), Mumbai, seeking to start the corporate insolvency resolution process against EIL. By order dated 28.08.2024, the NCLT found debt and default, admitted the application, appointed an Interim Resolution Professional and declared a moratorium under Section 14 of the Code.
The appellant appealed to the National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) (Insolvency) No. 1808 of 2024. She argued that the NCLT had failed to consider that EIL's liabilities had been transferred to another company through a scheme of demerger and a subsequent amalgamation, and that a renewed sanction letter dated 18.11.2017 did not mention the guarantee, which therefore should be deemed relinquished. By its judgment of 11.09.2025 the NCLAT dismissed the appeal, noting that the internal adjustments within the ESSL group had no effect on the corporate guarantor's liability because clause 8 of the guarantee deed provided that the guarantee would not be determined by absorption or amalgamation of the guarantor company. The NCLAT also reproduced the NCLT's reference to several Supreme Court judgments.
Before the Supreme Court, senior counsel Ms. Madhavi Divan pointed out that the citations and judgments relied on by the NCLT, as referred to by the NCLAT in paragraph 12 of its opinion, were fake and non-existent, probably AI-generated, and that even where citations were accurate, the excerpted paragraphs could not be traced in the law reports. The Court undertook its own examination. The Bank filed an affidavit saying the judgments were not cited by its counsel at the bar and that the NCLT had obtained them through its own research.
Legal Issues
Click each question to reveal the Supreme Court's answer
Arguments
The battle of arguments before the Supreme Court
Petitioner
Vihaan Kumar
The precedents relied on by the NCLT are fake and non-existent
Ms. Madhavi Divan, senior counsel for the appellant, pointed out at the outset that the citations and judgments relied on by the NCLT, as reproduced by the NCLAT in paragraph 12 of its opinion, were fake and non-existent, probably AI-generated, and that even where case citations were accurate, the excerpted paragraphs were not traceable to those judgments in law reports.
Merits: liabilities transferred and guarantee relinquished
Before the NCLAT the appellant had contended that EIL's liabilities had been transferred to another company through a scheme of demerger and subsequent amalgamation, and that the renewed sanction letter dated 18.11.2017 did not mention the guarantee, so it should be deemed relinquished. Brief arguments on the merits were also advanced before the Supreme Court.
Respondent
State of Haryana
Judgments were not cited by the Bank and came from the tribunal's own research
The Bank filed an affidavit stating that the alleged judgments relied on by the NCLT were not cited by its counsel at the bar and that the so-called precedents were obtained through the adjudicating authority's own research.
Defence on merits
Counsel for the respondents countered the appellant's submissions on the merits of the matter. The NCLAT had noted that clause 8 of the guarantee deed provided that the guarantee would not be determined on absorption or amalgamation of the guarantor company with any other company.
Court's Analysis
How the Court reasoned its decision
The Court opened by stressing its resolve to adopt AI technology in aid of adjudication while retaining total and absolute control over adjudication, with a human in the loop at every stage. It observed that the matter cannot be resolved through judicial orders alone but needs public policy and enforceable rules, which are being deliberated. It then focused on a specific trait of AI, the tendency to generate non-existent or hallucinated results, and called its use as precedent a catastrophic contamination of judicial determination. The Court declared zero tolerance for the Bar and the Bench, clarifying that its judgment has no bearing on the rightful use of AI. On the facts, the Court independently examined the authorities the NCLT relied on and found that several citations were wrong or non-existent, or that the cited paragraphs did not exist. It noted that the fake judgments escaped scrutiny by the appellate tribunal as well, and reasoned that a decision based on such material is no decision at all. The Court set aside both orders, restored the Section 7 application and refrained from commenting on the merits.
with a human in the loop at every stage.
Para 1
Signals that AI may assist adjudication but cannot replace human control over decisions.
It is a misconduct on the part of an advocate to cite such judgments without verification.
Para 7
Fixes a professional duty on advocates to verify authorities before citing them, especially AI-generated ones.
such a decision is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making.
Para 7
Even slight reliance on fake material vitiates the decision, regardless of its actual effect on the outcome.
Today's courts and tribunals implicitly trust lawyers when referring to precedents cited before them.
Para 16
Highlights why verification by the Bar matters, since courts rely on the integrity of citations placed before them.
A decision of a Court or an adjudicating authority based on material which is fake and hallucinated is no decision at all, and it amounts to subversion of the rule of law.
Para 17
The operative principle on which the NCLT and NCLAT orders were set aside.
The Verdict
Relief Granted
The appellant obtained the setting aside of the admission order and the appellate order, and a fresh hearing of the Section 7 application. The merits of the insolvency claim were left entirely open.
Directions Issued
- The judgment and orders of the NCLT dated 28.08.2024 and the NCLAT dated 11.09.2025 are set aside
- The Section 7 application, RCP (IB) 6/MB/2023, is restored to its original number
- The NCLT shall proceed in accordance with law, and the Supreme Court has expressed no opinion on the merits
- The adjudicating authority shall dispose of the application expeditiously, preferably within two weeks from the date of the judgment
- Pending disposal of the application, the parties shall maintain status quo as of the date of the judgment
- The Bar Council of India is directed to constitute a committee to deliberate on members of the bar submitting fake and hallucinated material as precedents and to prescribe guiding principles and disciplinary action for violations
Key Legal Principles Established
Producing, citing or using AI-generated precedents without verification attracts zero tolerance from courts.
It is misconduct for an advocate to cite AI-generated or fake judgments without verification, and a serious lapse for a judge to rely on them.
A decision that relies on fake or hallucinated precedents is no decision in the eyes of the law, even if the material had only an indirect bearing on the outcome.
The ruling does not bar the rightful use of AI; its concern is the presentation or reliance on fake or hallucinated material as if it were a court precedent.
AI may be adopted in aid of adjudication, but the Court asserts total and absolute control over adjudication, with a human in the loop at every stage.
Appellate tribunals must scrutinise the authorities relied on below, since fake judgments that escape scrutiny undermine the integrity of adjudication.
Key Takeaways
What different people should know from this case
- If a court or tribunal decides your case using fake or non-existent judgments, that decision can be set aside by the Supreme Court.
- Lawyers are expected to check every case they cite, especially anything produced by an AI tool.
- AI tools can still be used in legal work, but the final responsibility rests with the human lawyer or judge.
- Being sent back for a fresh hearing does not mean you have won or lost on the merits of your underlying dispute.
Legal Framework
Applicable laws and provisions
Statutory Provisions
Section 7
Insolvency and Bankruptcy Code, 2016
“Provides for initiation of the corporate insolvency resolution process by a financial creditor.”
Relevance: The Bank's Section 7 application against the corporate guarantor EIL was admitted by the NCLT and has now been restored for fresh decision.
Section 14
Insolvency and Bankruptcy Code, 2016
“Provides for a moratorium on certain proceedings and actions once the insolvency commencement date is declared.”
Relevance: The NCLT declared a moratorium under this section when admitting the application on 28.08.2024.
Related Cases & Precedents
M. Subramaniam v. S. Janaki
similar(2020) 16 SCC 728; 2020 SCC OnLine SC 341
The correct cause title for the judgment that the NCLT had wrongly cited as State Bank of India v. M/s Shree Ram Urban Infrastructure Ltd., 2020 SCC OnLine SC 341, as noted by the Supreme Court.
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