What happened
The Supreme Court of India’s judgment of 2 July 2026 records that a company had guaranteed a bank loan to another company, which failed to repay it. The National Company Law Tribunal in Mumbai admitted the guarantor into insolvency proceedings on 28 August 2024.
The judgment records that the tribunal relied on six authorities from earlier Supreme Court cases. When the Supreme Court examined them, three citations did not exist. Two referred to real cases but included paragraphs that could not be found in those judgments. One gave the wrong citation for a real case, again with a paragraph that does not exist.
The appeal tribunal upheld the decision on 11 September 2025. Its judgment repeated the same six authorities.
Before the Supreme Court, counsel for the appellant, a suspended director of the guarantor company, submitted that the authorities were fake and “probably AI-generated”. The bank filed an affidavit saying its lawyers had not cited them, and that they had come from the tribunal’s own research.
The Supreme Court set aside both decisions and sent the insolvency application back to the tribunal to be decided again. It did not decide whether the company should be placed into insolvency.
What an auditable version would have shown
The Supreme Court described the material as “non-existent, fake and hallucinated material, generated through Artificial Intelligence (AI)”. According to the judgment, some AI-generated passages were wrongly attributed to genuine citations.
The judgment does not identify which AI tool was used or who used it. The bank’s affidavit said the authorities came from the tribunal’s own research, but the court made no finding about who produced them.
A record of the tribunal’s drafting would have shown where each quoted passage came from, who checked it and whether the words appear in the original judgment.
The Supreme Court examined the authorities itself. It set out where each one appeared in the tribunal’s decision and what was wrong with it.
Where the gap was
According to the judgment, the fake judgments “escaped scrutiny by the first statutory appellate tribunal”. The court said that courts and tribunals generally trust lawyers when they cite precedents. Here, according to the bank’s affidavit, the lawyers had not cited them.
The judgment does not record any check of the six authorities against the law reports at either tribunal, and the same authorities travelled from the first decision into the appeal.
A CitationVerifier is designed to check whether a cited authority exists and whether the quoted text appears in it before a document is issued.
A ConductRecord keeps the source of each quoted passage, the check and the result.
CitationVerifier and ConductRecord are Headlights designs.
What governance should have looked like
The Supreme Court declared “zero tolerance” for citing or relying on unverified AI-generated precedents. It said a judge who relies on such material commits a serious lapse, and that a decision based on it “is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making”. It said its judgment has no bearing on the rightful use of AI.
It directed the Bar Council of India to set up a committee to prescribe guidance, and disciplinary consequences, for advocates who submit such material. It made no equivalent direction for tribunals.
For a court or tribunal using AI in research or drafting, best practice would be to check that every cited case exists and that every quotation matches the original judgment, and to record those checks before the decision is issued. An appeal tribunal should check the authorities in the decision under appeal, not only the reasoning.
Failure Pattern: an insolvency tribunal relied on non-existent and misquoted precedents that the Supreme Court described as AI-generated, and the appeal tribunal repeated them without detecting the problem.
Governance Principle: a court or tribunal should be able to show, for every authority it relies on, where the text came from and that someone checked it against the official report before the decision was issued.
The reference implementation of CitationVerifier and ConductRecord is open source. It lives at github.com/saffronandindia/headlights-oss, Apache 2.0 licensed and free to install. The repository is public now.
Sources
- Civil Appeal No. 11950 of 2025, 2026 INSC 668 (Supreme Court of India, 2 July 2026)
- Supreme Court Says Alleged ‘Hallucinated’ Citations By NCLT-NCLAT In Essel Infraprojects Case Under Examination (LiveLaw, 19 May 2026)