Fiduciary

In Bristol and West Building Society v. Mothew 1998 Ch. 1, the term “fiduciary”, was described as under:

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

Dale and Carrington Invt. (P) Ltd. and Another Vs. P.K. Prathapan and Others, and Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, establish that Directors of a company owe fiduciary duties to its shareholders. In P.V. Sankara Kurup Vs. Leelavathy Nambiar, , the Supreme Court held that an agent and power of attorney holder can be said to owe a fiduciary relationship to the principal.

In a recent decision Mr. Krishna Gopal Kakani Vs. Bank of Baroda, the Supreme Court had to decide whether a transaction resulted in a fiduciary relationship. Money was sought to be recovered by the plaintiff, from a bank, who had moved the Court for auction of goods imported, and retained the proceeds; the Trial Court overruled the objection to maintainability, stating that the bank held the surplus (of the proceeds) in a fiduciary capacity. The High Court upset the Trial Court’s findings, ruling that the bank did not act in a fiduciary capacity. The Supreme Court affirmed the High Court’s findings. The Court noticed Section 88 of the Indian Trusts Act, which reads as follows:

Section 88. Advantage gained by fiduciary.- Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

Affirming the High Court’s findings that the bank did not owe a fiduciary responsibility to the appellant, it was held by the Supreme Court, that:

9. An analysis of this Section would show that the Bank, to whom the money had been entrusted, was not in the capacity set out in the provision itself. The question of any fiduciary relationship therefore arising between the two must therefore be ruled out. It bears reiteration that there is no evidence to show that any trust had been created with respect to the suit money.

The following kinds of relationships may broadly be categorised 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.

 The Advanced 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 (1) when one person places trust in the faithful integrity of another, who is a result gains superiority or influence over the first; (2) when one person assumes control and responsibility over another; (3) when one person has a duty to act or give advice to another on matters falling within the scope of the relationship; or (4) when there is specific relationship that has traditionally be recognised as involving fiduciary duties, as with a lawyer and a client, or a stockbroker and a customer.