We received a marriage proposal for my sister and after investigating we came across a rumour stating that groom’s grand father had married his wife’s real sister while he was in nikah with his wife . As per his grand father he had divorced his first wife before marrying wife’s sister. But his first wife says he had not divorced her.
In such cases what should we do and who to trust ? How can shariyat help us in such situations? Is it permissible to consider marriage proposal of such child/grand child?
All other aspects with respect to this proposal are suitable to our family and sister.

You should ignore rumors. If he says his marriage to her was after divorcing, you take his word for it.