Judicial Decisions Based on Fabricated AI-Generated Precedents are Coram Non Judice and Legally Unsustainable

The Appellant, a suspended director of Essel Infraprojects Ltd. (EIL), challenged the initiation of the Corporate Insolvency Resolution Process (CIRP) against EIL

Respondent No. 1 (J Bank) filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) after the principal borrower defaulted on loan facilities secured by EIL’s corporate guarantee

The NCLT admitted the application on 28.08.2024

On appeal, the NCLAT dismissed the Appellant’s contention that liabilities were extinguished via demerger, relying on EIL’s guarantee deed and six precedents cited by the NCLT

However, it was discovered that the precedents relied upon by the NCLT and NCLAT were non-existent or "hallucinated" materials generated by Artificial Intelligence (AI)

1. Whether an adjudicating authority can rely on non-existent or hallucinated AI-generated precedents to support a judicial determination

2. Whether a decision based on fake or hallucinated material is sustainable in the eyes of the law

3. Whether the citation of unverified AI-generated judgments constitutes professional misconduct

The Court asserted the principle of "human in the loop" for judicial technology, mandating absolute human control over adjudication processes

It applied the doctrine of the "sanctity of adjudication," declaring that integrity in decision-making is violated if fake material enters the process

The Court emphasized that Reliance on non-existent precedents amounts to a "subversion of the rule of law"

Furthermore, it invoked the regulatory authority of the Bar Council of India under the Legal Practitioners Act/Bar Council rules to address professional misconduct regarding the citation of unverified materials

The Supreme Court found that the NCLT utilized its own research to produce six citations, of which four were entirely non-existent and two contained "hallucinated" paragraphs wrongly attributed to genuine case titles

The Court reasoned that AI, while a transformative tool for efficiency, possesses a dangerous tendency to generate "invisible, insidious, and catastrophic" fake results

The Court held that since the NCLT and NCLAT implicitly trusted these fake precedents without verification, the judicial process was "contaminated"

Because the "lifeblood of judicial determination" is truth and the disciplined training of the mind (Saadhana), any decision based—even in part—on hallucinated material is void ab initio, regardless of whether the material had a direct bearing on the merits

The Court held that there is "zero tolerance" for the bench or bar to cite or rely on AI-generated hallucinated material. It declared such decisions as "no decision in the eyes of the law"

The Section 7 IBC application was restored to the NCLT for fresh disposal within two weeks, with a direction to maintain the status quo in the interim

The Court further directed the Bar Council of India to constitute a committee to prescribe disciplinary actions for advocates submitting unverified AI-generated materials