Share transmission-a case study

A company is incorporated with two subscribers A and B. Both are the Directors also. In its Articles, there is a provision that “the Directors may, at anytime, in their absolute and uncontrolled discretion refuse to register any transfer of shares”. After A’s death, his son applied to have his shares registered in his name. B, the other member and Director of the company, refuses to register those shares based on the above mentioned provision of Articles of Association. Is B right?

According to Section 82 of the Companies Act, 1956, Shares of a member in a company are movable property transferable as provided in the Articles of Association of the company. On the death of a person, property is transferred in the name of his heirs. This is by “operation of law” and it should be distinguished from “transfer”. Transfer of shares from one person to another through the operation of law is named as “transmission of shares” not “transfer”. In a similar case, Indian Chemical  Products Limited v. State of Orissa, it was held that Directors cannot refuse to register transmission of shares, for they have no right to interfere with the course of law. Here in this case, A’s son is getting the title of A’s shares by inheritance. So B has no power to prevent the operation of law. He is bound to allow the registration of those shares in the name of A’s son. Nobody has the right to exercise discretionary power in a manner not justified by the interests of the company. The Court may come to rescue of A’s son and order registration of A’s shares in the name of his son.