Invalid Oral Agreement Leads to Rejection of Plaint

The court found that the oral agreement between the two companies was not valid under the current legal framework. The plaint did not disclose a cause of action, leading to the rejection of the plaint in O.S.No.21 of 2009. The Civil Revision Petition was allowed, the previous order was set aside, and all pending miscellaneous petitions were closed.

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Issues Involved:
1. Validity of oral agreements between juristic persons (companies).
2. Applicability of Order VII Rule 11 CPC for rejection of plaint.
3. Interpretation of relevant provisions under the Companies Act, 1956 and 2013.
4. Determination of cause of action based on oral agreements.

Detailed Analysis:

1. Validity of Oral Agreements Between Juristic Persons:
The respondent/plaintiff filed O.S.No.21 of 2009 seeking specific performance based on an alleged oral agreement of sale between two companies. The petitioners/defendants argued that such an oral agreement between juristic persons is not legally valid. The court examined Section 46(1)(b) of the Companies Act, 1956, which allowed oral agreements, but noted that this provision was repealed by Section 465(2)(b) of the Companies Act, 2013. The new Act does not provide for oral agreements, making the alleged oral contract invalid.

2. Applicability of Order VII Rule 11 CPC for Rejection of Plaint:
The petitioners/defendants filed I.A.No.491 of 2018 under Order VII Rule 11(a) read with Section 151 CPC, seeking to reject the plaint on the grounds that it did not disclose a substantial legal cause of action. The court reiterated that the power to reject a plaint under Order VII Rule 11 CPC can be exercised at any stage of the proceedings, even at the argument stage, provided the plaint does not disclose a cause of action or is barred by law.

3. Interpretation of Relevant Provisions Under the Companies Act, 1956 and 2013:
The court analyzed the transition from the Companies Act, 1956 to the Companies Act, 2013. Section 46 of the 1956 Act, which permitted oral agreements, was repealed by Section 465(2)(b) of the 2013 Act. The court emphasized that the new Act prevails over the old Act, and the absence of a provision for oral agreements in the 2013 Act means such agreements are not legally valid between companies.

4. Determination of Cause of Action Based on Oral Agreements:
The court scrutinized whether the plaint disclosed a cause of action based on the alleged oral agreement. It was noted that companies, being artificial legal persons, must act through authorized agents and typically enter into written agreements. The lack of a Board resolution authorizing any person to enter into an oral agreement further weakened the respondent's case. The court concluded that the oral agreement did not provide a valid cause of action for filing the suit.

Conclusion:
The trial court's dismissal of the interlocutory application was found to be erroneous. The court held that the oral agreement between the two companies was not valid under the current legal framework, and the plaint did not disclose a cause of action. Consequently, the Civil Revision Petition was allowed, the order dated 14.12.2018 was set aside, and the plaint in O.S.No.21 of 2009 was rejected. All pending miscellaneous petitions were also closed.

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