Insolvency claims may be tested for genuineness, and validly assigned financial debt remains enforceable by the assignee.

The resolution professional in insolvency may scrutinise the substance and genuineness of claims, rather than mechanically collating them, and may admit, revise, or reject claims on credible material. Validly assigned financial debt remains enforceable by the assignee, so the assignment agreements were upheld. On the facts, the term-loan claim and ECL Finance Loan II were admitted on the basis of loan documents, account records, sanction papers, and balance confirmation, while the alleged corporate-guarantee claim was rejected for want of proof of the primary guarantee document and supporting records. The admitted claims were enlarged in part and the committee of creditors was to be reworked accordingly.

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Issues: (i) whether the interim resolution professional was confined to a mechanical collation of claims or could verify the underlying transactions and test them for genuineness; (ii) whether the assignment agreements executed in favour of the applicant were legally effective and could be acted upon for admission of the assigned debts; and (iii) whether the claims arising from the IndusInd Bank facilities, the corporate guarantee, and ECL Finance Loan II were liable to be admitted or rejected.

Issue (i): whether the interim resolution professional was confined to a mechanical collation of claims or could verify the underlying transactions and test them for genuineness.

Analysis: The insolvency process requires more than a purely clerical receipt of claims. The resolution professional is entitled to scrutinise the material placed before him to determine whether the claim arises from a genuine financial debt or from a collusive or sham arrangement, and to ensure that the committee of creditors is not distorted by related-party or otherwise suspect transactions. The regulations also contemplate substantiation of claims, determination on best estimate, revision upon additional information, and compliance with natural justice when a claim is reduced or excluded.

Conclusion: The interim resolution professional was not restricted to a mechanical collation of claims and could examine the underlying transactions for genuineness.

Issue (ii): whether the assignment agreements executed in favour of the applicant were legally effective and could be acted upon for admission of the assigned debts.

Analysis: A financial debt legally assigned or transferred remains capable of being claimed by the assignee. The timing of the assignments, the registration steps, and the later authorisation did not, on the facts shown, invalidate the assignments. The underlying debts had been created well before assignment, the transactions were supported by consideration, and the applicable statutory framework permitted assignment of financial assets and recognition of the assignee as financial creditor.

Conclusion: The assignment agreements were upheld and could be acted upon for the applicant's claims.

Issue (iii): whether the claims arising from the IndusInd Bank facilities, the corporate guarantee, and ECL Finance Loan II were liable to be admitted or rejected.

Analysis: The term-loan component assigned by IndusInd Bank was supported by the loan documents, account statements, and acknowledgment reflected in the corporate debtor's records, and the amount kept in abeyance could not stand. The claim based on the alleged corporate guarantee was not proved because the primary guarantee document was not produced and the contemporaneous records did not support that liability. As to ECL Finance Loan II, the applicant produced sanction documents and a later balance confirmation, while the reason given for rejection was not supported by adequate material.

Conclusion: The term-loan claim and ECL Finance Loan II were directed to be admitted, while the corporate-guarantee claim was rejected.

Final Conclusion: The claim admitted in the insolvency process was enlarged in part, the committee of creditors was to be reworked accordingly, and the application was disposed of with partial relief to the applicant.

Ratio Decidendi: In insolvency resolution, the resolution professional may verify the substance and genuineness of claims and admit, revise, or reject them on legally credible material, while a validly assigned financial debt remains enforceable by the assignee.

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