Transmission of shares by operation of law overrides restrictive articles, and bad-faith refusal can justify rectification of the register.

Shares that devolve by operation of law pass to the successor State without any instrument of transfer, and a company's articles cannot be stretched to refuse registration of such devolution. The distinction between transfer and transmission is material, so a restriction aimed at transfers does not defeat title that has already vested by law. Where the directors delayed registration and refused without a bona fide ground, the refusal was capricious and justified rectification of the share register under section 38. A procedural objection that the request was made in the name of the Secretary rather than the State did not defeat the substantive right to registration. The refusal was therefore ineffective and relief was upheld.

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Issues: (i) whether the shares had vested in the State of Orissa by operation of law and whether the company's articles authorised refusal to register that devolution; (ii) whether the refusal to register the transfer was mala fide and whether rectification of the share register was warranted under section 38; (iii) whether the application failed because the request for registration had been made in the name of the Secretary instead of the State.

Issue (i): whether the shares had vested in the State of Orissa by operation of law and whether the company's articles authorised refusal to register that devolution

Analysis: The shares originally held by the Maharaja were public property of the merged State and, after the constitutional changes and merger arrangements, devolved on the State of Orissa by operation of law. The articles empowered refusal in relation to transfer, not a devolution of title by operation of law. The distinction between transfer and transmission was material, and the restrictive article could not be extended to a case where title passed without an instrument of transfer.

Conclusion: The shares vested in the State of Orissa, and the company had no power under its articles to refuse registration of that devolution.

Issue (ii): whether the refusal to register the transfer was mala fide and whether rectification of the share register was warranted under section 38

Analysis: Even apart from devolution by operation of law, the State had lodged a duly executed and stamped transfer deed. The directors delayed registration for years and ultimately refused without a bona fide ground. The power to refuse registration was discretionary, but it had to be exercised reasonably and in good faith. Where the refusal was capricious and unsupported by a valid reason, the court could intervene and order rectification under the statutory summary jurisdiction.

Conclusion: The refusal was mala fide and rectification under section 38 was rightly ordered.

Issue (iii): whether the application failed because the request for registration had been made in the name of the Secretary instead of the State

Analysis: The objection was not taken by the company at the relevant time and was not supported by the record. A clear request had in any event been made to recognise the State as the owner and to enter its name in the register. The alleged defect did not defeat the substantive entitlement to be entered as member.

Conclusion: The objection was untenable and did not bar relief.

Final Conclusion: The State of Orissa was entitled to be registered as shareholder, and the company's refusal justified rectification of the register; the appeal accordingly failed.

Ratio Decidendi: Where title to shares passes by operation of law, a company's power to refuse registration under its articles does not extend to that devolution, and a capricious or bad-faith refusal to recognise the true owner justifies rectification of the register under section 38.

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