Supreme Court Overturns NCLT Judgment Due to AI-Created False Citations
In a significant ruling, the Supreme Court of India has annulled a judgment by the National Company Law Tribunal (NCLT) concerning the insolvency of Essel Infraprojects. The decision was predicated on the tribunal’s reliance on fabricated and fictitious judgments generated by artificial intelligence (AI) tools. In the case titled Pooja Ramesh Singh Vs J&K Bank, the Supreme Court bench, comprising Justices PS Narasimha and Alok Aradhe, underscored that trust in the adjudication process is severely compromised when judgments are based on such erroneous AI-generated material.
The bench emphasized that citing AI-generated precedents without prior verification constitutes professional misconduct by the legal representatives. “Courts must ensure a zero-tolerance approach towards the use of unverified AI-generated precedents,” the bench stated, highlighting the vital need for maintaining integrity in legal proceedings.
The Supreme Court deemed the NCLT decision as void in the eyes of the law, regardless of whether the AI-generated material had a direct or indirect influence on the judgment. The court stressed that even a minor presence of such false material in the decision-making process undermines the sanctity of legal adjudication.
As a consequence, the Supreme Court set aside both the NCLT and the National Company Law Appellate Tribunal (NCLAT) judgments, which had previously upheld the NCLT ruling. “To preserve the integrity of legal adjudication, we have annulled the judgments of both the NCLT and NCLAT,” the bench declared.
In its judgment, the Supreme Court raised broader concerns about the use of AI in legal contexts. While acknowledging the potential of AI as a supportive tool, the court reaffirmed that human oversight in adjudication must remain absolute. “AI technology can aid adjudication, but human control must be unwavering at every stage,” the court noted.
The court cautioned that AI’s growing capabilities could lead to overreliance, impacting intellectual work ethics. Hence, it is imperative to regulate AI’s integration into legal processes to prevent its insidious infiltration into decision-making roles traditionally undertaken by humans.
The court did not address the technical causes of AI hallucinations, leaving that to engineers and scientists. However, it highlighted the perils associated with leveraging fabricated AI-generated content as legal precedents, likening it to a hazardous contaminant that threatens the lifeblood of judicial determination.
Consequently, the Supreme Court has directed the Bar Council of India to establish a committee for an in-depth examination of this issue. This case originated from a plea by suspended director Pooja Ramesh Singh challenging the NCLT’s decision to admit Essel Infraprojects to the corporate insolvency resolution process, following a Section 7 application filed by Jammu and Kashmir Bank Limited.
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The NCLT’s Mumbai Bench had accepted the insolvency plea on August 28, 2024, for a claimed debt of ₹87.43 crore, linked to a ₹200 crore facility that Jammu and Kashmir Bank had extended to Pan India Utilities Distribution Company Limited. This facility was backed by a corporate guarantee from Essel Infraprojects and a mortgage over land in Gorai, Borivali, Mumbai. However, the Supreme Court found the NCLT’s reliance on non-existent AI-generated precedents to be erroneous, necessitating a reconsideration of the case based on factual precision.
Senior Advocate Madhavi Divan represented Pooja Ramesh Singh, with Vishesh Kalra assisting. Advocate Sumesh Dhawan, alongside a team from Dua Associates led by Sanjana Dua, represented Jammu and Kashmir Bank. [Read Judgment]
