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FIDUCIARY RELATIONSHIP

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FIDUCIARY RELATIONSHIP
Mr. M. GOVINDARAJAN By: Mr. M. GOVINDARAJAN
April 13, 2011
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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Waker defines ‘fiduciary’ as a person in a position of trust, or occupying a position of power and confidence with respect to another such that he is obliged by various rules of law to act solely in the interest of the other, whose rights he has to protect.   He may not make any profit or advantage from the relationship without full disclosure.   The category includes trustees, company promoters and directors, guardians, solicitors and clients and other similarly placed.

J. Ananthanarayanan observed that a fiduciary relationship may arise in the context of a jural relationship.  Where confidence is reposed by one in another and that leads to a transaction in which there is a conflict of interest and duty in the person in whom such confidence is reposed, fiduciary relationship immediately springs not existence.

In ‘Lyell V. Kennedy’ – (1889) 14 AC 437, the court explained that whenever two persons stand in such a situation that confidence is necessary is reposed by one in the other, there arises a presumption as to fiduciary relationship which grows naturally out of that confidence.   Such a confidential situation may arise from a contract or by some gratuitous undertaking, or it may be up on previous request or undertaken without any authority.

In ‘Dale & Carrington Invt. (P) Limited V. Prathaphan’ – (2005) 1 SCC 212 and ‘Needle Industries (India) Limited V. Needle Industries Newey (India) Holding Limited’ – (1981) 3 SCC 333, the Court held that the directors of the company owe fiduciary duty to its share holders.

In ‘P.V. Sankara Kurup V. Leelavathy Nambier’ – (1994) 6 SCC 68, the Court held that an agent and power of attorney can be said to owe a fiduciary relationship to the principal.

Sec. 88 of the Indian Trusts Act requires a fiduciary not to gain an advantage of his position. Section 88 applies to a trustee, executor, partner, agent, director of a company, legal advisor or other persons bound in fiduciary capacity.  The following are the examples of kind of persons bound by fiduciary character-

  • Trustee;
  • Director of a Company;
  • Partner;
  • Agent;
  • Executor;
  • LegalAdviser;
  • Manager of a joint family;
  • Parent and Child;
  • Religious, medical and other advisers;
  • Guardians and ward;
  • Licensee appointed on remuneration to purchase stocks on behalf of Government;
  • Confidential transactions wherein confidence is reposed, and which are indicated by-

(a) under influence;

(b) control over property;

(c) cases of unjust enrichment;

(d) confidential information;

(e) commitment of job;

  • tenant for life;
  • co-owner;
  • Mortgagee;
  • Other qualified owners of property;
  • De facto guardian;
  • Receiver;
  • Insurance Company;
  • Trustee de son tort;
  • Co-heir;
  • Benamidar.

The Advance Law Lexicon, 3rd Edition, 2005 defines fiduciary relationship as a relationship in which one person is under a duty to act for the benefit of the other on the matters within the scope of the relationship… Fiduciary relationship usually arise in one of the four situations-

  • When one person places trust in the faithful integrity of another, who is a result gains superiority or influence over the first;
  • When one person assumes control and responsibility over and another;
  • When one person has a duty to act or give advice to another on matters falling within the scope of the relationship; or
  • When there is specific relationship that has traditionally be recognized as involving fiduciary duties, as with a lawyer and a client, or a stock broker and a customer.

The Delhi High Court in WP(C) 228/2009, ‘CPIO, Supreme Court of India V. S.C. Agarwal & another’ – 2009 (162) DLT 135 (Del) discussed the concept of fiduciary relationship in some detail.   The Court categorized the following kinds of relationships as ‘fiduciary’-

  • Trustee/beneficiary/ (Section 88, Indian Trusts Act, 1882);
  • Legal guardians/wards (Section 20, Guardians and Wards Act, 1890);
  • Lawyer/client;
  • Executors and administrators/legatees and heirs;
  • Board of directors/company;
  • Liquidator/company;
  • Receivers, trustees in bankruptcy and assignees in insolvency/creditors;
  • Doctor/patient;
  • Parent/child.

From the above discussions, it may be seen that a fiduciary relationship is one whereby a person places complete confidence in another in regard to a particular transaction or his general affairs or business.   The relationship need not be ‘formally’ or ‘legally’ ordained, or established, like in the case of a written trust; but can be one of moral or personal responsibility, due to the better or superior knowledge or training, or superior status of the fiduciary as compared to the one whose affairs he handles.

In ‘Supreme Court of India V. S.C. Agarwal and others’ (LPA No.501/2009), the High Court held that a Chief Justice of India cannot be a fiduciary vis-à-vis Judges of the Supreme Court.  The Judges of the Supreme Court held independent office and there is no hierarchy, in their judicial functions, which places them at a different plane than the Chief Justice of India.   The declarations are not furnished to the Chief Justice of India in a private relationship or as a trust but in discharge of the Constitutional obligation to maintain higher standards and probility of judicial life and are in the larger public interest.   In these circumstances, it cannot be held that the asset information shared with the Chief Justice of India, by the Judges of Supreme Court, are held by him in the capacity of fiduciary, which if directed to be revealed, would result in breach of such duty.

In ‘G.S. Reddy V. Central Bureau of Investigation (CBI), Mumbai’ – 2010 (253) ELT 28 (CIC) it was held that CBI cannot be a fiduciary vis-à-vis accused in an enquiry.   The latter’s office is an independent of CBI and there is no hierarchy in their judicial functions, which places him at a different plane than the CBI.

 

By: Mr. M. GOVINDARAJAN - April 13, 2011

 

 

 

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