Internal correspondence and an unaudited balance sheet cannot prove debt discharge without a legally effective repayment transaction.

A claim in insolvency cannot be rejected merely because internal correspondence suggests a possible adjustment or because an unaudited balance sheet omits the loan, unless the record shows actual discharge of the debt by a legally effective transaction. Here, the letters only reflected a request for assistance and a proposed adjustment, while the transaction entries indicated payment by the sister concern followed by a fresh disbursement, not extinction of the corporate debtor's liability. The plea of collusion also failed for want of any finding that the loan transaction was sham or collusive. The rejection of the claim was therefore unsustainable, and the claim was directed to be admitted.

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Issues: Whether the claim of the financial creditor could be rejected on the basis that the corporate debtor's loan stood discharged by its sister concern, and whether the internal correspondence and unaudited balance sheet established such discharge.

Analysis: The internal letters between the corporate debtor and its sister concern did not show actual repayment of the debt owed to the financial creditor. The correspondence only reflected a request for assistance and an offer to adjust amounts stated to be lying with the lender, but there was no material showing any post-offer transaction by which the corporate debtor's liability was actually extinguished. The unaudited balance sheet for 31.03.2021 also could not be treated as conclusive proof of repayment, particularly when it merely omitted the loan without explaining how the liability was discharged. The transaction entries relied upon by the respondents instead showed payment by the sister concern followed by a corresponding fresh disbursement, which did not establish discharge of the corporate debtor's debt. The plea of collusion was also not accepted as the impugned order contained no finding that the loan transaction itself was sham or collusive.

Conclusion: The debt was not proved to have been discharged, and the rejection of the claim was unsustainable; the claim ought to be admitted.

Final Conclusion: The impugned order was set aside and the resolution professional was directed to admit the claim and reconstitute the committee of creditors accordingly.

Ratio Decidendi: A claim in insolvency cannot be rejected on the basis of internal correspondence or an unaudited balance sheet unless the record shows actual discharge of the debt by a legally effective transaction.

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