Editorial 1: Manufacturing Justice — On the Top Court and AI Use Observations
Context
In a landmark and unprecedented judgment delivered on July 2, 2026, the Supreme Court of India set aside the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in the corporate insolvency case of Essel Infraprojects Ltd. The apex court bench, comprising Justices P.S. Narasimha and Alok Aradhe, made a shocking discovery: the tribunals had based their judgments on non-existent, fabricated case laws generated by Artificial Intelligence (AI).
Taking a stringent “zero-tolerance” view of this lapse, the Court equated the infiltration of AI “hallucinations” in the judicial process to the 1984 Bhopal gas tragedy—terming the phenomenon as “invisible, insidious, and catastrophic” as the leak of methyl isocyanate. The Court ruled that relying on unverified AI material fundamentally vitiates the adjudicatory process and amounts to a subversion of the rule of law. Consequently, the Court directed the Bar Council of India (BCI) to constitute an expert committee to frame strict regulatory norms and disciplinary actions against lawyers who submit hallucinated precedents.
Syllabus Mapping
- General Studies Paper II: Structure, organization, and functioning of the Judiciary; Statutory, regulatory, and various quasi-judicial bodies (NCLT, NCLAT); Government policies and interventions.
- General Studies Paper III: Awareness in the fields of IT, Computers; Science and Technology- developments and their applications and effects in everyday life (Artificial Intelligence and Machine Learning).
- General Studies Paper IV: Ethics in public and professional administration; Corporate governance; Probity in Governance.
Main Body: Multi-Dimensional Analysis
1. The Factual Matrix: Anatomy of a Technological Crisis in Law
The dispute arose from an insolvency application filed by Jammu & Kashmir Bank against Essel Infraprojects Ltd over an alleged default of ₹87.43 crore. The NCLT Mumbai admitted the application, and the NCLAT subsequently upheld it. However, during the Supreme Court appeal filed by suspended director Pooja Ramesh Singh, it was revealed that the NCLT had relied upon several citations—such as State Bank of India v. Shree Ram Urban Infrastructure Ltd. and Everest Kento Cylinders Ltd. v. Union of India—which simply did not exist in any recognized legal database. The NCLT had allegedly conducted its “own research” using a Generative AI tool, which fabricated the case titles, citations, and even the reasoning paragraphs. This incident exposed a critical vulnerability in India’s tribunal system, demonstrating how easily algorithmic falsehoods can bypass judicial scrutiny and become enshrined in legal orders.
2. Decoding ‘AI Hallucinations’ and the “Methyl Isocyanate” Analogy
Large Language Models (LLMs) like ChatGPT or Claude are predictive text engines; they are fundamentally designed to predict the next plausible word in a sequence based on vast training data, not to verify empirical facts or historical records. When asked for legal precedents, these models often suffer from “hallucinations”—a phenomenon where the AI confidently generates completely fictitious information that looks and sounds authentic.
The Supreme Court’s comparison of this phenomenon to the leak of methyl isocyanate (the toxic gas responsible for the Bhopal gas tragedy) is a profound jurisprudential metaphor. Methyl isocyanate was invisible and silent, yet it caused catastrophic systemic failure and generational damage. Similarly, AI hallucinations in the legal domain are invisible to the naked eye (as they perfectly mimic the formatting and language of real judgments), insidious (because they quietly infiltrate the legal reasoning process without raising immediate alarm), and catastrophic (because they poison the well of common law). If a fake precedent is recorded in a judgment, it can be subsequently cited by lower courts across the country, creating a domino effect of injustice based on a machine’s mathematical error.
3. Constitutional Implications: Subversion of the Rule of Law
The bedrock of the Indian judicial system is the rule of law and the principles of natural justice (Article 14 and Article 21 of the Constitution). Natural justice demands that a judicial order must be reasoned, transparent, and based on valid, existing law.
The Supreme Court categorically declared that a decision founded upon fake, hallucinated material is “no decision at all in the eyes of law”. Even if the fake material had only an indirect bearing on the outcome, the mere presence of “an iota” of hallucinated data vitiates the entire adjudicatory process. By outsourcing legal reasoning to an opaque algorithm, the tribunals failed to apply an independent judicial mind. This deprives litigants of their fundamental right to a fair hearing and undermines public trust in the dispute resolution mechanism. It transforms the judicial process from a deliberate search for truth into a dangerous lottery dictated by a machine’s algorithmic outputs.
4. Professional Ethics and the Responsibility of the Bar
The legal profession is inherently a noble calling driven by a fiduciary duty to the court. Advocates are considered officers of the court, tasked with assisting the bench in arriving at the truth. The Supreme Court’s observation that submitting unverified AI-generated precedents amounts to “professional misconduct” is a much-needed ethical recalibration.
In the modern era, the pressure of heavy caseloads and the demand for rapid legal research have pushed many legal professionals to use commercial AI tools. However, the Court made it clear that the convenience of technology cannot absolve a lawyer of their professional duty to manually verify every citation against authoritative databases (like SCC Online or Manupatra). Shifting the blame to a “research tool” is an unacceptable defense. This ruling places the burden of technological accountability squarely on the shoulders of the Bar, mandating that technological adoption must not outpace ethical compliance.
5. The “Human-in-the-Loop” Imperative: Bench vs. Machine
Perhaps the most philosophical dimension of the judgment was the Supreme Court’s reflection on the nature of human reasoning. The Bench observed that cultivating a “habit” of delegating thinking to machines could have serious consequences for the “core of human existence”. Legal adjudication is not merely a mechanical application of rules to facts; it involves empathy, equity, constitutional morality, and discretion—attributes that are shaped through “deliberate, disciplined, and systematic training” of the human mind.
While the Court clarified that it is not against the adoption of AI for administrative or assistive purposes (such as translation, transcription, or docket management), it drew a hard red line at substantive adjudication. The Court insisted on “total and absolute control over adjudication, with a human in the loop, at every stage”. An AI cannot comprehend the socio-economic context of an insolvency or the human cost of a bail denial; thus, the judicial mind is irreplaceable.
6. Global Context and the Need for Sovereign AI Infrastructure
India is not alone in facing this crisis. In 2023, the US legal system witnessed the infamous Mata v. Avianca case, where lawyers submitted fake ChatGPT-generated cases and were subsequently sanctioned. The global consensus is shifting towards stringent regulation of AI in high-stakes environments. For India, this highlights a critical infrastructural gap. General-purpose AI models are trained on the open web, making them highly susceptible to hallucinating Indian laws. This underscores the need for India to develop specialized, “closed-loop” Legal AI systems—sovereign digital public infrastructure trained exclusively on verified Indian statutes and Supreme Court judgments, featuring built-in guardrails that strictly prohibit the generation of novel text in legal citations.
Way Forward
- Swift Action by the Bar Council of India (BCI): The BCI must promptly execute the Supreme Court’s directive by forming an expert committee comprising legal luminaries, technologists, and ethicists. This committee should draft a comprehensive “Code of Technological Conduct” for advocates, clearly defining the penalties—ranging from fines to the suspension of practice licenses—for submitting unverified, machine-generated falsehoods in court.
- Implementation of Supreme Court AI Guidelines: The draft ‘Regulations for Use of Artificial Intelligence in Courts’ must be officially notified and rigorously enforced. These rules must explicitly ban the use of AI in determining substantive judicial outcomes, such as sentencing, bail eligibility, and witness credibility assessments.
- Judicial and Legal Digital Literacy: Technology is evolving faster than the law. Mandatory Continuous Legal Education (CLE) modules must be introduced for both sitting judges and practicing advocates. The legal fraternity must be trained to understand how LLMs function, what their inherent biases are, and how to spot the linguistic footprints of AI hallucinations.
- Technological Audits for Tribunals: Quasi-judicial bodies like the NCLT, NCLAT, and ITAT handle matters of immense economic consequence. The Ministry of Law and Justice should institute periodic technological audits of the research tools used by tribunal members to ensure they rely exclusively on authenticated, subscribed legal databases rather than open-source generative AI.
- Developing ‘Bhashini for Law’: Building on initiatives like the Supreme Court Vidhik Anuvaad Software (SUVAS), the government and the judiciary should collaborate with institutions like IITs to develop a highly secure, restricted-domain AI tailored specifically for the Indian legal ecosystem. This AI should act strictly as a retrieval engine, not a generative one, providing accurate precedents with direct hyperlinks to official court records.
Conclusion
The July 2026 Supreme Court ruling serves as a vital constitutional firewall against the reckless integration of unverified technology into the justice system. While artificial intelligence holds immense, undeniable potential to modernize the administrative machinery of Indian courts and reduce the crushing burden of pendency, it cannot and must not replace the deliberative rigor of a human judge. Justice is a fundamentally human endeavor. As the apex court unequivocally established, “Justice must be done and seen; not hallucinated.” The future of Indian jurisprudence depends on harnessing technology as a servant of the law, ensuring it never becomes its unchecked master.
Practice Mains Question:
“The recent Supreme Court observation comparing AI hallucinations in judicial orders to the ‘Bhopal gas tragedy’ underscores the existential threat of unregulated technology in law.” Discuss the constitutional and ethical implications of relying on Generative AI in the adjudicatory process. Suggest a framework to balance technological efficiency with judicial integrity. (250 words, 15 marks)
Editorial 2 : Unwelcome Surge — On the Buoyancy in GST Collections
Context
In June 2026, India recorded a robust 13.9% year-on-year growth in Goods and Services Tax (GST) collections, reaching a massive ₹1.95 lakh crore. As the GST regime successfully completes its ninth year, these headline numbers seemingly paint a picture of booming economic health and fiscal buoyancy. However, a recent editorial in The Hindu titled “Unwelcome Surge” cautions against premature celebration. A granular breakdown of the data reveals a worrying divergence: the surge is overwhelmingly driven by a 34.6% spike in Integrated GST (IGST) on imports, whereas domestic GST collections grew at a highly subdued 6.5%. The editorial argues that this revenue buoyancy is an “unwelcome” phenomenon—spurred not by a broad-based revival in domestic manufacturing or consumption, but largely by imported inflation, currency depreciation, and panic-driven gold hedging.
Syllabus Mapping
- General Studies Paper III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment; Government Budgeting (Taxation, GST); Effects of liberalization on the economy; Infrastructure (Energy, Ports, Roads, Airports, Railways, etc.).
Main Body: Multi-Dimensional Analysis
1. Dissecting the Divergence in GST Revenue
Tax buoyancy is generally defined as the responsiveness of tax revenue growth to changes in GDP or the underlying tax base. A healthy economy exhibits strong domestic tax collections. However, the June 2026 GST data exposes a “dual-speed” dynamic:
- The Import IGST Anomaly (34.6% Growth): Initially, optimistic economists hypothesized that this surge might reflect increased imports of capital goods and industrial inputs, which would signal future industrial expansion. However, May 2026 trade data (which dictates June tax collections) nullifies this theory. The merchandise import value surged primarily due to two non-productive sectors: crude oil/petroleum (up 54% YoY in value) and gold (up 34%).
- The Sluggish Domestic GST (6.5% Growth): A low single-digit growth in domestic GST—barely outpacing the domestic retail inflation rate—indicates that real, inflation-adjusted domestic consumption and value-addition are virtually stagnant. It reflects suppressed purchasing power among the rural and urban middle classes.
2. The Illusion of Growth: Imported Inflation and Currency Dynamics
The impressive import tax mop-up is essentially an artificial inflation of the tax base caused by external macroeconomic headwinds, not internal economic strength:
- Imported Inflation & Global Freight: Elevated global commodity prices (with non-oil imports up 14.5% in May) combined with a sharp spike in global shipping and freight charges have mechanically increased the landed valuation of imported goods. Because IGST is an ad valorem tax (calculated as a percentage of the total value), higher import bills automatically translate to higher tax revenues for the government, acting as a regressive tax on the end consumer.
- Currency Depreciation: The Indian Rupee has steadily depreciated by approximately 6% against the U.S. dollar since late February 2026. A weaker rupee means that India pays more in INR terms for the exact same volume of imports. This currency weakness artificially swells the import IGST kitty.
- Gold Hoarding as a Red Flag: The 60% YoY surge in global gold prices indicates that investors are aggressively hedging against geopolitical and economic uncertainties. Rather than deploying capital into job-creating ventures, money is being parked in dead assets. Furthermore, the government’s sudden policy move to hike the gold import duty from 6% to 15% on May 13 mathematically inflated the import tax collected, masking the lack of real economic activity.
3. Corroborating Signals of Domestic Weakness
The thesis that the domestic economy is fundamentally subdued is validated by multiple concurrent macroeconomic indicators:
- Index of Eight Core Industries: The core infrastructure sectors—which hold a combined weight of over 40% in the Index of Industrial Production (IIP)—registered a highly muted growth of just 2.8% in Q1 FY27. This is less than half the ~6% growth recorded in the corresponding period last year, with notable contraction or stagnation in crude oil, natural gas, refinery products, and fertilizers.
- Manufacturing Slowdown: The HSBC India Manufacturing Purchasing Managers’ Index (PMI) slipped to 54.2 in June. While any figure above 50 indicates expansion, this reading marks the second-lowest expansion pace in 13 months, corroborating a noticeable deceleration in new factory orders and industrial output.
4. Nine Years of GST: Structural Triumphs and Persistent Frictions
As India marks nine years of transitioning to a unified, destination-based indirect tax system, the government can rightly point to major structural successes. The formalization of the economy is evident as the taxpayer base has expanded exponentially from roughly 66 lakh in 2017 to over 1.65 crore today. Digital compliance through e-invoicing and faster automated refunds has formalized MSME supply chains.
However, critical structural flaws remain unresolved:
- Input Tax Credit (ITC) Disputes: Complexities and ambiguities surrounding ITC matching continue to trigger massive and prolonged litigation between taxpayers and revenue authorities.
- Federal Frictions: States continue to express deep concerns over the federal balance of revenue sharing, arguing that their fiscal autonomy was permanently surrendered without adequate and sustained compensation mechanisms during economic downturns.
Way Forward
- Looking Beyond Headline Numbers: Policymakers must exercise caution and not treat nominal headline tax collections as a proxy for economic health. Tax data must be rigorously adjusted for inflation and currency depreciation to gauge the true state of domestic consumption.
- Revitalizing Domestic Consumption: To correct the glaring imbalance between import taxes and domestic taxes, the government must stimulate internal demand. This requires targeted interventions such as rationalizing personal income tax for the middle class, expanding the scope of the MGNREGA to ensure rural liquidity, and accelerating state-level capital expenditure.
- Accelerating GST Reforms: The GST Council must prioritize “GST 2.0” reforms. This includes rationalizing the multiple tax slabs to a simpler three-tier structure, correcting inverted duty structures in crucial manufacturing sectors (like textiles and footwear), and swiftly operationalizing the GST Appellate Tribunals (GSTAT) across all states to clear the massive backlog of indirect tax litigation.
- Mitigating Imported Inflation: To shield the economy from external shocks, India must aggressively pursue its transition toward renewable energy to reduce the crude import bill. Additionally, while the high import duty on gold boosts tax revenues, policymakers must be wary of it incentivizing illegal smuggling channels, requiring stronger border enforcement and alternative sovereign gold investment vehicles.
Conclusion
While a robust headline GST collection of ₹1.95 lakh crore undeniably offers a comfortable fiscal cushion to the government, it is currently acting as a mirror reflecting underlying macroeconomic vulnerabilities rather than a marker of indigenous economic strength. As the editorial rightly concludes, relying on imported inflation and a weakening currency to underwrite tax buoyancy is fundamentally unsustainable. True economic resilience and sustainable fiscal health will only be achieved when tax collections are primarily driven by broad-based domestic manufacturing, robust job creation, and genuine consumer demand.
Practice Mains Question:
“While robust headline GST collections present a picture of fiscal health, a deeper analysis reveals an ‘unwelcome surge’ driven by imported inflation rather than domestic value addition.” Analyze this statement in the context of India’s recent macroeconomic indicators and evaluate the successes and unresolved challenges of the GST regime as it completes nine years. (250 words, 15 marks)
