TaxTMI 
TaxTMI 
In Pooja Ramesh Singh Versus Jammu And Kashmir Bank Ltd. & Anr. - 2026 (7) TMI 174 - Supreme Court, Pan India Utilities Distribution Company (‘PIUDCL’ for short) had availed loan from Jammu and Kashmir Bank Limited (‘Bank’ for short). Pooja Ramesh Singh is the suspended Director of Essel Infra Projects Limited and also a personal guarantor to the loan borrowed by PIUDCL. Since PIUDCL did not pay the loan amount the same was declared as Non-Performing Asset.
The bank initiated corporate insolvency resolution profess against the corporate debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) before the National Company Law Tribunal (‘NCLT’ for short), Mumbai. The NCLT admitted the said application on 28.08.2024 and appointed an Interim Resolution Professional (‘IRP’ for short) and declared a moratorium under Section 14 of the Code. The NCLT observed that the appellant, in this case, while it is not disputed that there were internal adjustment by the ESSL group by way of demerger/merger/amalgamation, it has no effect insofar as the liability of the corporate guarantor is concerned because it has been categorically mentioned in clause 8 of the guarantee deed that guarantee will not be determined on event of absorption/amalgamation of corporate debtor with any other company. The NCLT relied on various judgments and held that held that the guarantee given by the Corporate Debtor shall still exist and will not be effected where the two orders referred to herein above passed by the Bombay High Court and admitted the petition because debt and default was not denied. Pooja Ramesh Singh filed an appeal being aggrieved against the order of NCLT before National Company Law Appellate Tribunal (‘NCLAT’ for short).
Before the NCLAT, the appellant contended that the NCLT erred by failing to consider that its liabilities had been transferred to another company due to a scheme of demerger and a subsequent amalgamation. A renewed sanction letter dated 18.11.2017 did not mention the guarantee and therefore, the guarantee was deemed to have been relinquished. The NCLAT dismissed the said appeal on 11.09.2025. The appellant on hearing the submissions of the appellant analysed the case in detail dismissed the appeal. Therefore, the appellant filed the present appeal before the Supreme Court against the order of NCLAT.
The appellant submitted the following before the Supreme Court-
- The citations/judgments relied upon by the NCLT to arrive at the impugned findings, as referred by the appellate tribunal in paragraph 12 of its opinion, are fake and non-existent, probably AI-generated.
- Even the cited judgments are correct the excerpted paragraphs from the judgment(s) are not traceable to those judgments in law reports.
The respondents made counter to the submissions of the appellant. The Supreme Court heard the submissions of the parties to the present appeal. The Supreme Court observed that it is not in dispute that the judgments relied upon by the NCLT are non-existent, and some AI-generated paragraphs are wrongly attributed to genuine citations. The Supreme Court analysed the following judgments relied on NCLT-
- State Bank of India v. Shree Ram Urban Infrastructure Ltd., 2020 SCC OnLine SC 341 - Wrong citation of an existing reported judgment and a non-existent paragraph.
- Everest Kento Cylinders Limited v. Union of India (2015) 2 SCC 1 - Correct citation but non-existent paragraph.
- ICICI Bank Limited. v. Urban Infrastructure Real Estate Limited., (2019) 16 SCC 528 – non-existent citation.
- V.S. Dempo & Company Limited v. Reliance Communications Limited’- (2021) 10 SCC 176 – Non-Existent Citation.
- CANARA BANK Versus N.G. SUBBARAYA SETTY & ANR. - 2018 (4) TMI 1901 - Supreme Court – correct citation but non-existing paragraphs.
- Sarbjit Singh v. Union Bank of India, (2022) 7 SCC 464 – non-existent citation.
The respondent No.1 alleged that the judgments relied on by NCLT were not cited by its counsel at the bar. The precedents relied on by the adjudicating authority were obtained through its own research. The fake and non-existing judgments were escaped scrutiny by the NCLAT. The Supreme Court observed that 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. Such a decision is unsustainable and has to be set aside at the earliest. The Supreme Court set aside the order of NCLAT. The Supreme Court directed the Adjudicating Authority to dispose the petition as early as possible since the case is pending for a long period. The Supreme Court directed the parties to maintain status quo.
In this appeal the Supreme Court analysed the effect of AI in legal sector. The Supreme Court observed that AI has acquired the capability to better, if not fully substitute, human effort, both routine and intellectual. The development of AI is compelling professionals to adapt and employ AI for intelligent, efficient and swift functioning. It is now reported to have successfully navigated the legal system, securing a county court decree in a suit for recovery of unpaid fee. Even though the result can be gratifying, even inspiring; yet if left unregulated. The Courts have absorbed various technologies and made them as a integral part of the judicial system. The AI is not just an aid to assist us in our work, but is an alternative to our own thinking, reasoning and even decision making. More conscious is required as unregulated use of AI will insidiously enter legal practice, the process of judicial decision-making and decision-making itself.
If thinking is delegated and it forms a habit, it will have serious consequences for the core of human existence, which lies in its capacity to think – to discern the distinction between what is right and what is wrong, truth and falsehood, virtue and vice, dharma and adharma. It is necessary to have absolute and total control over the application and usage of AI. The control lies in being two steps ahead of its application and in making deliberate choices about when and where to apply. We are aware that this is not an issue that can be resolved through judicial orders and declaratory judgments, but only through Public Policy and enforceable Rules and Regulations.
The Supreme Court observed that the real success is, however, not in the making of the Rule or Regulation, but to be found in the power of the will of the Bar as well as the Bench, to harness this science and apply it with care and caution. No other facet of law and its practice has ever demanded a higher and deeper corroboration and coordination between the Bar and the Bench than the need to identify, decide, and apply AI to adjudication and the determination of disputes. It is necessary for Courts to adopt a zero-tolerance mode for producing, citing or using AI-generated precedents without verification. It is a misconduct on the part of an advocate to cite such judgments without verification. It is a serious lapse if a judge relies on such a fake or hallucinated AI-generated material as precedents in support of the determination. The Supreme Court has no hesitation in declaring that 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. Such decisions are to be set aside even if an iota of fake or hallucinated material enters the decision-making process, as it would violate the sanctity of adjudication. It is absolutely necessary to maintain integrity in decision making.
The Supreme Court is aware that mere declaration of prohibitory action is not sufficient; there must be a consequential action following accountability. Now the Supreme Court fixed the responsibility of the Bar in respect of AI. The Supreme Court directed the Bar to constitute a committee and deliberate on this issue of members of the bar submitting such fake and hallucinated material before the Court as if they are precedents of law. The Bar Council shall prescribe a guiding principle to prevent such occurrences, along with the disciplinary action that will follow a violation of the norms.