What happened
Jammu and Kashmir Bank had lent money to a power distribution company, and Essel Infraprojects Ltd stood as the corporate guarantor for that loan. When the borrower stopped repaying and the account was classified as a bad loan, the bank went to the National Company Law Tribunal (NCLT) in Mumbai and asked it to start insolvency proceedings against the guarantor. On 28 August 2024 the tribunal agreed: it admitted the case, appointed a resolution professional, and froze recovery action against the company. A suspended director of the company appealed, arguing that a corporate restructuring had moved the liability elsewhere and that a later sanction letter no longer mentioned the guarantee. The appellate tribunal (NCLAT) dismissed that appeal in September 2025. It was only when the matter reached the Supreme Court that the real problem surfaced. The appellant's senior counsel pointed out that the six Supreme Court judgments the NCLT had cited to justify its order were fake — non-existent, and most likely generated by an AI tool. Strikingly, the bank filed an affidavit confirming that its own lawyers had never cited those cases. The tribunal had found them through its own research.
What the court held
The Supreme Court checked each of the six citations itself, and confirmed the problem. Three of them — ICICI Bank v. Urban Infrastructure Real Estate, V.S. Dempo & Co. v. Reliance Communications, and Sarbjit Singh v. Union Bank of India — were simply citations to judgments that do not exist. The other three were subtler and, in a sense, more dangerous: the cases themselves are real and reported, but the paragraphs quoted from them were invented and appear nowhere in the actual judgments — and in one of those three, the citation given for the real judgment was wrong as well. The Court described this kind of fabricated precedent as an invisible contaminant in the justice system — insidious, and catastrophic by the time anyone notices. Its ruling is blunt. Courts must take a zero-tolerance approach to producing, citing, or relying on AI-generated precedent without verification. For an advocate, citing such a judgment without checking it is professional misconduct. For a judge, relying on one is a serious lapse. And a decision resting on fake or hallucinated material, the Court declared, is 'no decision in the eyes of the law' — it must be set aside even if only an iota of the fabricated material entered the reasoning, and regardless of whether it made any difference to the outcome. The NCLT and NCLAT orders were accordingly set aside and the insolvency application sent back to be decided afresh, with the Supreme Court expressing no view at all on who should ultimately win. It also directed the Bar Council of India to set up a committee and frame binding norms, with disciplinary consequences, for lawyers who file fabricated citations. One clarification matters, and the Court made it expressly: this is not a ruling against artificial intelligence. The judgment has no bearing on the legitimate use of AI in legal work. What it forbids is passing off fake material as though it were a precedent of a court.
The law behind it
The underlying dispute was an ordinary one under the Insolvency and Bankruptcy Code, 2016. Section 7 lets a financial creditor — typically a bank — apply to the NCLT to begin insolvency proceedings once a debt is due and unpaid, and Section 14 imposes the moratorium that freezes recovery actions once the application is admitted. A corporate guarantor can be pursued under the same provisions as the borrower, which is why the guarantor company here found itself facing insolvency for someone else's loan.
But the principle the Supreme Court actually laid down is not an insolvency rule at all — it goes to the integrity of adjudication itself. A court or tribunal decides by applying binding precedent to proven facts. If the 'precedent' does not exist, the decision has no legal foundation to stand on, whatever else it says. That is why the Court could set the orders aside without ever reaching the question of whether the guarantee survived the company's restructuring.
The direction to the Bar Council of India — the apex statutory body that regulates advocates and their professional conduct — is the enforcement half of the ruling. The Court did not itself frame a new disciplinary rule; it instructed the Bar Council to constitute a committee, prescribe a guiding principle, and lay down the disciplinary action that will follow a breach.
If you want to understand the terms used here, our legal knowledge centre explains precedent, citation, and moratorium in plain language, and you can ask our AI assistant to walk you through anything in this judgment.
What this means for you
Most people will never set foot in a company tribunal, but the rule the Court laid down reaches much further than insolvency. It applies to every court and tribunal in the country, and it cuts both ways. If an order that goes against you cites a case, you are now on very firm ground insisting that the case be real and that the words quoted from it actually appear in it. An order propped up by a citation that does not exist is liable to be set aside — and the Supreme Court has said this holds even where the fake material was not decisive. The flip side is a warning. AI tools are now routinely used to prepare legal arguments, and they are very good at producing citations that look impeccable and are entirely invented. After this judgment, an advocate who files such a citation without verifying it is not merely careless; the Supreme Court has called it misconduct. If you are drafting anything yourself with the help of a chatbot, the same caution applies to you — a fabricated case will not help your matter, and it may sink it.
What to do
If you are handed an order or a notice that relies on court judgments, verify them before you accept them. Look up each case by its citation on a public database such as Indian Kanoon or the court's own website, and then do the step that actually caught the problem in this case: find the specific paragraph that has been quoted and check that those words really appear there. A citation can be perfectly genuine while the passage attributed to it is fabricated — that is exactly what happened with three of the six cases here. If a quoted paragraph cannot be traced, tell your advocate at once and have the point raised before the court; this judgment is now directly available to support you. Use AI to help you understand the law and to prepare your questions — never to supply case law you have not checked. That is also why NyaySahay answers from the actual text of the sections it retrieves rather than from memory, and shows you what it is relying on: an answer you cannot verify is an answer you should not use.
Source
Supreme Court of India, Justice P.S. Narasimha and Justice Alok Aradhe, 2 July 2026. Citation: 2026 INSC 668. Read the full judgment.
Published 13 July 2026 · NyaySahay