Supreme Court to examine claim that imaginary AI-generated case laws were cited in pleadings

The Supreme Court on Thursday said it will examine an allegation that a rejoinder filed before the Court by a promoter of Gstaad Hotels Bengaluru contained over 100 fabricated or possibly AI-hallucinated case laws [Deepak Raheja Vs Omkara Asset Reconstruction]..Concerns about such imaginary case laws being cited were raised by Senior Advocate Neeraj Kishan Kaul during a hearing of a dispute tied to insolvency proceedings against Gstaad Hotels.Representing Omkara Assets Reconstruction Pvt Ltd., Kaul told the Court that several case laws relied upon by the hotel's promoter, Deepak Raheja, in a rejoinder filed before the Court “do not exist at all." Kaul said that Raheja's pleadings contained numerous non-existent or fictitious judgments, including criminal law decisions presented as IBC precedents, which were possibly generated through artificial intelligence (AI) prompts.Kaul further submitted that in many instances, the facts of the case were wrong or the same judgment was cited in multiple propositions, which was not dealt with by the original judgment.A Bench of Justices Dipankar Datta and Augustine George Masih took serious note of the submission. The Court orally remarked that it would “put the appellant to task” if the citations were found to be fictitious or AI-generated.The matter will be heard next on December 8..By way of background, on July 8, the National Company Law Tribunal (NCLT) Mumbai admitted insolvency petitions filed by Omkara Assets Reconstruction Pvt Ltd against Gstaad Hotels Pvt Ltd.On August 19, the National Company Law Appellate Tribunal (NCLAT) upheld the admission of such insolvency applications under Section 7 of IBC against Gstaad Hotels Pvt Ltd and Neo Capricorn Plaza Pvt Ltd. The promoters of the hotel have approached the Supreme Court challenging this decision..The loans underlying the dispute arise from a December 26, 2017 financing package from Piramal Finance which sanctioned a ₹450 crore term loan and a ₹50 crore revolving credit facility to Gstaad Hotels and a ₹100 crore term loan to Neo Capricorn. Both entities later availed additional credit under the Union government's Emergency Credit Line Guarantee Scheme (ECLGS scheme). Piramal assigned the debt to Omkara ARC on December 27, 2022, following which recall notices dated February 15, 2023, demanded ₹666.53 crore from Gstaad Hotels and ₹119.99 crore from Neo Capricorn..Before the NCLAT, Raheja and another suspended director argued that there was no default as on November 15, 2022, that withdrawals from the retention account distorted the figures and that undisbursed Debt Service Reserve Account (DSRA) amounts ought to have been considered. They also contended that both hotels were profitable assets and that an earlier January 8 NCLAT remand order precluded adverse findings.The NCLAT rejected these submissions.It held that the NCLT had, on remand, correctly considered the Cash Management Agreement, DSRA arrangements, ECLGS utilisation and bank statements. It affirmed that a clear default occurred on November 15, 2022 and took note of a ₹743.71 crore one-time settlement proposal submitted by the promoters as reflecting acknowledged liability.This NCLAT verdict was then challenged before the Supreme Court..Omkara was represented by Senior Advocate Neeraj Kishan Kaul..Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.