Section 21 Of Companies Act Does Not Bar Oral Agreements Between Companies: Rajasthan High Court

The Rajasthan High Court on 15 September held that Section 21 of the Companies Act, 2013, does not bar oral agreements between companies, clarifying that the provision governing authorised signatories does not require every agreement to be in writing.

Justice Rekha Borana dismissed a civil revision petition filed by Gnex Impex Private Limited and its director against an order dated 22 May 2025, by which the District Judge, Jodhpur Metropolitan, rejected their application to dismiss a suit filed by Shyam And Shyam Oils Private Limited over an alleged oral agreement between the companies. The Bench observed:

“So far as Section 21 of the Act of 2013 is concerned, it merely stipulates as to who can be authorized to sign a document/ agreement on behalf of the Company, which is essentially required to be in writing. The said provision cannot be read to conclude that it bars any oral agreement. Mere stipulation regarding the authorization of a person to sign a document cannot be interpreted in the manner that it bars an oral agreement.”

Gnex Impex had sought rejection of the suit under Order VII Rule 11 of the Code of Civil Procedure, 1908, arguing that an agreement between two companies had to be in writing under the Companies Act, 2013. Shyam And Shyam Oils opposed the application, contending that the Act contained no provision prohibiting oral agreements and that the signatory's authority required examination of evidence.

The High Court held that Section 21 governs the authorisation of persons to sign company documents and does not prohibit oral agreements. In the absence of a specific statutory bar, the Indian Contract Act, 1872, which recognises oral agreements, applies.

It also considered the Supreme Court's dismissal of an appeal against the Punjab and Haryana High Court's decision in M/s Shorewala Investment & Properties Ltd. v. Girish Kumar Jain and relied on the Calcutta High Court's ruling in Madhab Chandra Basu v. Safikul Molla.

On the separate issue of the signatory's authority, the Bench held that the absence of an authority letter could not justify rejection of the plaint under Order VII Rule 11. Since the plaint stated that the signatory was authorised, the validity of that assertion required adjudication after evidence was led. It stated:

“Coming on to the second ground pertaining to the absence of authority letter, as rightly observed by the learned Trial Court, the said issue could not be decided at the stage of Order 7 Rule 11, CPC. Once, a pleading to the effect had been made in the plaint, the fact whether the said pleading was correct or valid could be adjudicated only after the evidence being led qua the said issue. The ground to the said effect has rightly been rejected by the learned Trial Court.”

Accordingly, the High Court dismissed the revision petition, upholding the trial court's order.

For Petitioner: Advocate Sandeep Saruparia

For Respondent: Advocate OP Mehta