Non-existent precedents and Judicial diligence: An Analysis of NCLT orders relying on Hallucinated Precedents
Introduction : Artificial intelligence in the legal field has aided in the exploration of legal research but this benefit comes at the cost of a dangerous form of vulnerability in the form of hallucinations. AI-generated responses often reflect reasonable citations, real-looking case names and sound legal reasoning, which gives researchers a sense of false confidence. The ultimate result of this confidence is compromise in the integrity of the judicial process by mitigating the authority of judicial research used in the entire procedure.
This issue was specifically addressed in the recent judgement of the Apex Court, Pooja Ramesh Singh vs Jammu and Kashmir Bank Ltd., whereby the court identified the error on part of National Company Law Tribunal and the National Company Law Appellate Tribunal for placing reliance on AI-generated cases and consequentially set aside orders passed by both authorities. By citing the analogy of the Bhopal gas tragedy the court called this “release of methyl isocyanate in the province of law and justice”. The Court further went on to establish a zero-tolerance policy for unverified legal authorities. The blog aims to analyse the consequences of this judgment for the use of AI in the legal field while reading the same with judicial responsibility.
Legal Provisions
Section 424, Companies Act, 2013 (Principles of Natural Justice)
Quasi-judicial bodies in India are not bound by the strict terms of procedure of Civil Procedure Code, 1908 but shall still be bound by the principles of natural justice. The same principle applies to National Company Law Tribunal and the National Company Law Appellate Tribunal as well in the form of Section 424(1) of the Companies Act, 2013 that mandated that the tribunals shall not be bound by CPC while exercising powers under the Companies Act and Insolvency and Bankruptcy Code. The primary requirement of natural justice requires reliance on verifiable data and well-reasoned foundations of legal principles. When there is reliance played on AI-generated fictional precedents, this aspect seems to get defeated.
Article 141 and Article 136, Constitution
Article - 141 provides for the supremacy of decisions given by the Supreme Court and their binding value on all lower courts in the country. This is termed as the Doctrine of Stare decisis. When a non-existing precedent is cited in court, it violates this doctrine mandated by article 141 of the constitution. Article 136, on the other hand, provides power to the Supreme court to take up any matter directly from any lower court of tribunal, if its discretion suggests the same. This is known as the special leave petition and allows the supreme court to correct material errors and illegalities.
Legal Analysis
Doctrine of Nullity
The recent 2026 judgment of Pooja Ramesh Singh established a sound precedent that a judgement that relies on hallucinated cases and AI-generated precedents, is no decision at all. The court placed excessive emphasis on the point that even a grain of such material entering the court’s judicial decision-making hampers the adjudicatory process and vitiates the justice system.
Recognizing the use of legitimate AI in the legal field, the court highlighted the need to draw a clear distinction between this legitimacy and unverified usage of the AI tools. Judicial decisions have the immense power of impacting the lives of litigants and thus a decision based on fictional law should necessarily be considered as void - ab - initio.
Judicial Responsibility
The court has distinguished between the liabilities that may be assigned in such cases for the Bar and for the Bench. These include:
Duty of the Bench: While the court did recognize the excessive workload of judicial officers at all levels due to the increased pendency, at the same time, it was highlighted that cognitive reasoning of the human brain is something that cannot be delegated to the automated AI systems, whether it includes usage on part of the counsel or research on the judicial side. Usage of such unverified output has the capacity of causing serious harm to litigants and may cause complete judicial lapse.
Duty of the Bar: Lawyers are known as officers of the court, because they are responsible for aiding the idea of justice. This means that placing reliance on hallucinated content without any independent verification of each and every citation, case quotation and reasoning constitutes serious professional misconduct on part of the Bar. In continuation to this idea, the court directed the Bar Council of India to come up with guidelines for the ethical use of AI in the legal field.
Consequences of Remand and Procedural Impact
Ideally, when the NCLT or the NCLAT order is set aside by the Supreme court like in the present case due to reliance on hallucinated authorities, the case is remanded back to the adjudicating authority for the purpose of re-consideration on merits from the first step. This means remanding the case back, which comes with certain consequences:
Restoration of originality of status : Setting aside of an admission order as a part of Insolvency and Bankruptcy proceedings, under section 7 and 9 of the IBC, 2016, leads to the restoration of the corporate debtor to the pre-admission status, which essentially results in the suspension of the Corporate Insolvency Resolution Process and the subsequent discharge of the appointed Resolution Professional.
Delay due to re-adjudication : Remand for fresh consideration means the adjudicating authority has to re-hear the matter on merits which include genuine and verified precedents. This not only adds on to the litigation expenses throughout but also causes immense delay harming the litigant’s interests.
Case Laws
Pooja Ramesh Singh vs Jammu and Kashmir Bank Ltd., 2026 SCC OnLine SC 1258 - Court identified the error on part of National Company Law Tribunal and the National Company Law Appellate Tribunal for placing reliance on 6 AI-generated cases which were either completely hallucinated or contained such content to some extent and consequentially set aside orders passed by both authorities that admitted Section 7 IBC application. The court announced a zero-tolerance policy for such authorities.
State of Orissa vs Dhaniram Luhar, (2004) 5 SCC 568 : The Apex court clarified that reasoning is the soul of a judicial decision. When a decision is based on fake and hallucinated authorities and principles that do not exist, it defeats the first requirement of decision making, that is, reason. Thus, such orders hold no authority in law and are not sustainable.
State of Madhya Pradesh vs Chintaman Sadashiva Waishampayan, AIR 1961 SC 1623 : The court reiterated the well-established principle that tribunals including the NCLT may not be bound by strict bounds of procedure but are bound by principles of natural justice. This also includes the aspect of giving the opposing party an opportunity to verify and engage in rebuttal of the material relied upon by the party, else the order may stand invalidated.
Practical Implications
For the Litigants: Receiving an adverse order by a quasi-judicial authority including NCLT and NCLAT, which is based on hallucinated authorities, compromises chances of justice. Their possible course of action in these circumstances include:
Engaging in an independent audit of the referenced judgements, including verification of citations and the relevant paragraphs extracted from the cited cases from authentic databases.
Filing a statutory appeal, is a right to the same is provided, or filing a review petition. If the error appears in the form of a simple citation mistake, filing of a review or a rectification petition to highlight the same proves helpful. The provision of the same is Section 420(2), Companies Act, 2013.On the other hand, if the entire case is made up and such a case has been the basis of the decision, then an appeal may be filed challenging the decision as violative of natural justice.
Requesting an interim stay on the operation of the impugned judgment by showcasing the basis of the decision as a hallucinated precedent, is yet another possible remedy.
Practical steps for counsel
AI usage in fields like law, which have high stakes for humans, should always be based on a Human-in-the-loop model, which means that while AI may be a helpful assistant in legal research, none of its assistance be included in official drafting without cross-verification by a human. It is also significant for the counsel and their legal team to keep a record of all the official sources of the material used, to verify the same in case the authenticity is questioned at any point of a legal trial.
Conclusion
The 2026 judgment of the Apex Court in, Pooja Ramesh Singh vs Jammu and Kashmir Bank Ltd., proves very helpful in establishing the judicial stance on AI’s entry into the field of legal research while highlighting the distinction between ethical usage and blind reliance. This means that judicial reasoning and diligence has no absolute replacement and any attempt to replace it with AI and its capacity to find legal authorities will be futile and also harmful to the principles of justice. The need of the hour, therefore, shall be to focus on the verification process at each stage including pre-filing as well as post-decision stages in many instances.
Post-Order Verification
The verification process does not end with the pronouncement of decisions by quais-judicial and judicial authorities and therefore there needs to be a strategy in place to engage in verification post the same as well. This may include:
Verification of each authority from official reporters including SCC or AIR or from the court websites.
To ensure the genuineness of the cited paragraphs, it is important to compare the verbatim of the exact paragraph from official sources.
Apart from citation and case names, it is also relevant to verify the coram of the case and the date of the order/judgment to ensure consistency
Once a decision is given based upon such hallucinated content, it is important to verify whether such a case formed the core of the decision or only an ancillary part of the same.
Finally, it is important to underline such mistakes in the certified copy of the decision and highlight the usage of unverified material in front of the court to approach the appropriate authority for further action.
Author: Sanskriti Bishnoi in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
Endnotes
Companies Act, 2013, s. 424, cl. 1.
Insolvency and Bankruptcy Code, 2016, s. 7.
Insolvency and Bankruptcy Code, 2016, s. 9.
Constitution of India, 19560, art. 136.
Constitution of India, 19560, art. 141.
Pooja Ramesh Singh vs Jammu and Kashmir Bank Ltd., 2026 SCC OnLine SC 1258.
State of Orissa vs Dhaniram Luhar, (2004) 5 SCC 568
State of Madhya Pradesh vs Chintaman Sadashiva Waishampayan, AIR 1961 SC 1623
Bar Council of India, Draft Guidelines on Usage of Artificial Intelligence Tools by Legal Practitioners, 2026.
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