NCLT Readmits Essel Infraprojects to CIRP After Supreme Court Remand Over AI-Hallucinated Citations
The Mumbai Bench of the National Company Law Tribunal (NCLT) has again admitted Essel Infraprojects Limited into the corporate insolvency resolution process (CIRP). The NCLT order dated 24 August 2026 in RCP(IB)/6(MB)2023, passed by Court-V comprising Judicial Member Vinay Goel and Technical Member Charanjeet Singh Gulati, admits the section 7 petition of Jammu and Kashmir Bank Limited. It comes after the Supreme Court set aside the earlier tribunal orders because they relied on non-existent and fabricated case law.
The debt and the guarantee
Jammu and Kashmir Bank sanctioned a Rs 200 crore line of credit to Pan India Utilities Distribution Company Limited (PIUDCL) on 17 December 2013. Essel Infraprojects executed a corporate guarantee dated 27 December 2013. The bank claimed a default of Rs 87,43,17,925.37, including interest at 12.20% a year and legal charges, and treated 29 October 2019, the date of its demand notice on the guarantor, as the date of default.
Why the case went back to the NCLT
The NCLT first admitted the petition on 28 August 2024, and the NCLAT upheld that order on 11 September 2025. In Pooja Ramesh Singh v. Jammu and Kashmir Bank Ltd., Civil Appeal No. 11950 of 2025, 2026 INSC 668, decided on 2 July 2026, a bench of Justices P.S. Narasimha and Alok Aradhe found that the NCLT had cited six judgments that were either non-existent or quoted with fabricated paragraphs. Examples included "ICICI Bank Ltd. v. Urban Infrastructure Real Estate Ltd." and "Sarbjit Singh v. Union Bank of India", which do not exist, and genuine citations such as Everest Kento Cylinders with paragraphs that do not appear in the judgment.
The Supreme Court held that a decision resting on fabricated material is no decision in the eyes of the law. It said courts must keep total control over any use of AI, with a human in the loop at every stage, and that advocates who cite unverified AI-generated precedents commit misconduct. It set aside both the NCLT and NCLAT orders, restored the section 7 application, directed the NCLT to decide it afresh on merits within two weeks with status quo in the meantime, and asked the Bar Council of India to form a committee on disciplinary norms for such conduct.
What the NCLT decided on fresh hearing
| Defence raised | NCLT finding |
|---|---|
| Guarantee moved to another company under a 2014 demerger and amalgamation | The schemes moved only liabilities of the demerged undertaking; the guarantee was an independent obligation, and its clause 8 kept it alive despite amalgamation |
| A 2017 renewal-cum-reduction letter substituting a new guarantor was a novation that discharged Essel (sections 62 and 133, Indian Contract Act, 1872) | No complete substitution was shown; the guarantee allowed additional security, so the new guarantee was supplementary |
| The bank had already proceeded against the borrower and the other guarantor | A creditor may pursue the borrower and several guarantors together; nothing had been recovered |
| Unclear default date, no proof of demand notice, defective power of attorney | Receipt of the 29 October 2019 notice was never denied; the power of attorney covered recovery proceedings; the petition was within limitation |
Operative directions
- CIRP starts against Essel Infraprojects, with a section 14 moratorium.
- Hemant J Mehta (IBBI/IPA-001/IP-P00027/2016-2017/10060) is appointed interim resolution professional.
- The bank is to deposit Rs 5 lakh towards initial CIRP costs.
- A public announcement under section 13 is to be made immediately, and management vests in the IRP.
Why it matters for professionals
For lenders, CAs and insolvency professionals, the order confirms that a guarantor stays bound where the guarantee deed allows additional or substituted security, unless there is a clear release. Finance teams should treat corporate guarantees as live exposures and keep sanction letters, guarantee deeds, restructuring papers and any release documents on file.
The case is also a warning on legal research. Every case name, citation and quoted paragraph used in pleadings, opinions or board papers should be checked against an authentic source before it is relied on.
Updated on 28 September 2026: linked the NCLT order of 24 August 2026 and the Supreme Court judgment of 2 July 2026, and added the bench, default date, the NCLT's findings, the operative directions and the Supreme Court's two-week timeline.
