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The term fiduciary that a  person who is responsible for the administration of property owned by others. A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests

 

Under Companies Act, 1956

 

Directors are appointed by Shareholders to manage the Company on their behalf and to act for their benefit and in the interests of the Company. Accordingly, Directors have a fiduciary relationship with the Company. Their fiduciary duties arising from such relationship are akin to those of a trustee, and they are expected to display utmost good faith in their dealings on behalf of the Company or with the Company. They are also not expected to use any of the Company's assets or information relating to its business, which may come to their control or possession in order to gain any advantage to themselves at the cost of the Company or its shareholders.

In addition to their fiduciary duties, Directors owe a duty of care to the Company not to act negligently in the management of its affairs, the standard of care being that of a prudent and reasonable man looking after his own affairs.

In Dale & Carrington P. Ltd. v. P.K. Prathapan 122 Comp Cas 161 (SC), the Supreme Court of India held that “the fiduciary capacity within which the directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company.”

Fiduciary capaicity and Indian Trust Act  (Section 88)

Advantage gained by fiduciary

According to Section 88 of Indian Trust Act,  - 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.

Simple example for the above section is that A, a partner, buys land in his own name with funds belonging to the partnership. A holds such land for the benefit of the partnership.  The partner must hold the land  on behalf of the partnership firm and also in the interest of other partners.

Under section 88 of Indian Trusts Act, an agent or other person bound is in a fiduciary character to protect the interest of the principal and the former would hold the property for the benefit of the principal or the person in whose behalf he acted as an agent. Held that a real purchaser is the respondent, the petitioner as an agent and power of attorney had purchased the property but ostensibly had his name entered in the sale certificate fraudulently and without consent of the principal and the question of benami does not arise though section 4 prohibits such a plea; P. V. Sankara Karup v. Leelavathy Nambiar, AIR 1994 SC 2694

Benami Transactions Act (Prohibition), 1988

Section 4 of the Act which contains the prohibition to recover the property held in benami expressly provides in sub-section (3), clause (b) that the said section is not to apply, inter alia, in a case where the property is held in the name of a trustee''  Thus the section 4 clearly provides prohibiton to recover the property held in benami.

THE Supreme Court has held that the provisions of the Benami Transactions (Prohibition of the Right to Recover Property) Act, 1988, did not prohibit a suit being filed against a trustee for the recovery of the trust property.

The ruling was given by a Division Bench comprising Mr. Justice B.N. Kirpal and Mr. Justice R.P. Sethi while allowing an appeal in the case of C. Gangacharan Vs. C. Narayanan

 




Category Corporate Law, Other Articles by - cs A Rengarajan 



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