A fiduciary relationship is where one person places some type of trust,
confidence, and reliance on another person. The person who is delegated trust
and confidence would then have a fiduciary duty to act for the benefit and
interest of the other party. The party who owes a duty to act for the best
interest of the other party is called the fiduciary. The party to whom the duty
is owed is called principal.
Fiduciary relationships are created in many legal
assignments such as contracts, wills, trusts, elections, corporate settings, The
main purpose for fiduciary relationships is to establish an honest and trusted
relationship between two parties where one party can rely and be confident that
the other person is working for their interest and are not using their power for
their own interest or the interest of a third party.
Definition of Fiduciary Relationship
There is no precise definition of Fiduciary Relation. Even Indian Trust Act,
1882 does not define the term fiduciary relationship. The definition of
Fiduciary Relationship can be gathered from various judgments of the High Courts
and Supreme Courts. Justice Anant Narayan of Madras High Court in case of Mrs.
Nellie Wapshare v. Pierce Leslie and Co. Ltd
(1) in which the term Fiduciary
is defined as follows:
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 into
The term fiduciary relations
relates to a person to whom property or power is
entrusted for the benefit of another. It is the relationship of a person to
another, where the former is bound to exercise rights and powers in good faith
for the benefit of later, e.g. trustee and beneficiary. This fiduciary
relationship may arise out of jural relationship or it may not.
Nature of Fiduciary Relationship:
Fiduciary relationship covers variety of
relations having some common features. Whether the relation between the two
persons is of fiduciary or not, depend upon the fact and circumstances of the
case. Though there is no hard and fast rule to determine the existence of
fiduciary relationship but it could be said that whether one has reposed
confidence in another, i.e. whether confidential relationship exists, is the
material test to determine the existence of fiduciary relationship.
Generally fiduciary relationship is a confidential relationship created by the
equity in the interest of good consciences and justice. It was held by Supreme
Court in Jaya Singh v. Krishna, (2) that wherever a person clothed with a
fiduciary character obtains some personal advantage by availing himself of his
position, such person remains as fiduciary for all the profits which are to be
held for the benefit of person at whose expenses and in derogation of whose
rights, the profit has been made or advantage has derived.
Classification of Fiduciary Relationship:
The fiduciary relationship may arise
out of numerous human transactions, wherein a confidence is reposed by one
person in another. In number of human transactions the fiduciary relationship is
recognized and enforced by law. The classification of the fiduciary relationship
can be grouped in following categories
1. Classification on the basis of human transactions.
2. Classification of fiduciary relationship according to the confidential
1. Classification on the basis of human transactionsi) Fiduciary relationship in trusteeship:
In this transaction the trustee is
under an obligation to protect the interest of beneficiary, for whose benefit
the confidence has been reposed on him. Thus there is fiduciary relationship
between trustee and beneficiary. The basic principle of the trust that the
trustee generally acts voluntarily and is not paid for his services, though he
may claim remuneration if he can show a specific entitlement of it. A trustee
cannot be a purchaser of trust property, as he cannot be both seller and
ii) Fiduciary relationship in commercial transaction
iii) Fiduciary relationship in domestic transaction:
- Directors of the Company: There is fiduciary relationship between
the Company and Director. It was held by Patna High Court in Commercial of
Agricultural Income Tax, Bihar v. Shri Hanuman Sugar Mills Ltd., (3) that
company was entitled to take back the lands because it was possible to take
the view that the directors obtained gains by impugned dealings with the
company. In this case the directors of the company and their relatives had
purchased the land belonging to the Company. Allahabad High Court in
Co-operative Company Ltd., Saharanpur v. Bhagwandas & Co., (4) held that
Company selling the shares belonging to one of the share holders which were
subsequently purchased by the minor sons of the Managing Director, that the
position of managing director is of fiduciary relation and hence if the
Managing Director gained any advantage under the sale, whether the purchase
is made in his own name or his minor sons, the benefit was bound to go to
the owners of those shares.
- Partnership: The whole law of partnership and the duties of the
partners are based on the principle of fiduciary relationship. Therefore,
every partner must be just and faithful to each other and to act for the
greatest common advantage of the firm. Section 37 of Partnership Act, 1932,
clearly provides that the relationship between the existing partners and
former partners is fiduciary in nature arising out of jural relationship. Section 88 of the Indian
Trust Act, 1882, gives a statutory recognition to this principle. Allahabad High
Court in Gopinath v. Satish Chandra, (5) held that the partners of the firm hold
fiduciary relationship towards their deceased partner’s representatives as
regards his interest in the partnership property.
- Agency: Section 182 of Indian Contract Act, defines principle of
agency. Agency is a fiduciary relationship whereby the principal ropes
confidence in the agent who accepts it and undertakes to act on behalf of
the person who so confided. Therefore the agent to make full and frank
disclosure of al material circumstances to the principal. The agent has to
obey the instruction given by the principal and to carry out the contract
with due diligence, skill and care. Agent cannot acquire the property of the
principal in his own name and also cannot deny the title of the principal.
There are number of
domestic transactions which are based on confidential relationship, in such
family relations there exists a fiduciary relationship:
iv) Fiduciary Relationship in professional transaction:
- Manager/Karta of the Joint Hindu Family and family members: A
Karta of Joint Hindu Family is a coparcener of the joint family and managing
the joint property for the other coparceners is in fiduciary relationship.
Madras High Court in N.C. T Chidambaram v. C.A.C. Subramaniam, (6) held that
a coparcener of joint Hindu family utilizing the joint property was held to
be in a fiduciary capacity.
- Parent and Child: The relationship between the parent and the
child is of fiduciary nature and hence, parents to act in good faith for the
benefit of child to safeguard and to protect the interest of the child. Himachal Pradesh
High Court in Bramha Raj Singh v. Brahma Raj Devi, (7) held that father in
possession of property on behalf of the son is in fiduciary relation.
confidential employment such as religious, medical, legal and other advisors are
deemed to occupy fiduciary position in relation to persons who they advised,
e.g. advocate and client, doctor and patient, etc.
Section 126 of Indian
Evidence Act deals with professional communication, which provides for No
barrister, attorney, pleader or vakil shall at any time be permitted, unless
with his client’s express consent to disclose any communication made to him in
the course and for the purpose of his employment as such barrister, pleader,
attorney or vakil, by or on behalf of his client, or to state the contents or
condition of any document with which he has become acquainted in the course and
for the purpose of his professional employment, or to disclose any advice given
by him to his client in the course and for the purpose of such employment.
section is based upon the principle that if communications to legal adviser were
not privileged, a man would be deterred from fully disclosing his case, so as to
obtain proper professional aid in the matter in which he is likely to be thrown
in to litigation.
v) Fiduciary relationship in jural transactions:
Fiduciary relationship in such
transactions includes the relations between the executor and heir, and between
guardian and ward. A testator of will appointing an executor either expressly or
by implication, for the management, and disposal of the property under the will
to the heirs, i.e. legatees. A guardian under Guardian and Ward Act, 1890 or
under Personal Law or appointed by the Court for the protection of person and
property of the minor ward is in fiduciary relationship.
vi) Fiduciary relationship in public transaction:
This transaction may arise out
of master and servant relationship. It may be in between the government and its
employees or public officers. In State of Madras v. Jaya Laxmi Rice mills,
, (8) it was held that licencees appointed on remuneration to
purchase stocks on behalf of government stand in fiduciary position.
case Court recognized and applied following three principles:
vii) Fiduciary relationship in other confidential transactions to be made
out by circumstances:
- Where a person using his official position earns money, the Government
has right to the money, even though no loss has been caused.
- There exists a fiduciary relationship between the officer and the
- A person who enriches or benefits himself unjustly is obliged by the
ties of natural justice and equity to refund the money so gained.
The question of fiduciary relationship in other transactions
arises when it is proved that confidence has under the circumstances been
reposed in fact. The principle applies to every case where influence is acquired
and abused, where confidence is reposed and betrayed. In Indian Contract Act,
1872, it is provided that the consent is not free consent if it is obtained by
undue influence (Section.16).
2. Classification of fiduciary relations according to
Following fiduciary relations are classified according to confidential
dimensions in different shades:
- Fiduciary relationship induced by control over property: In this
transaction the property of one person is under the control of another
person whatever position is at law may be, the latter person is in fiduciary
position. The relationship between bailer and bailee, lessor and leasee,
etc. fall into this category and such person is under obligation to keep the
property in his control separate from his own and must not use it in trading
for his own benefit.
- Fiduciary relationship induced by commitment of job: Fiduciary
relationship under this category arises out of employment, commission or
charge. This category is wider in the sense that includes the whole of
fiduciary relationship induced by control over property and it includes many
more relationship such as employer and employee, crown and its servants,
government and officers, company and directors, agents, solicitors,
promoters, even though they do not hold control over property.
- Fiduciary relationship induced by profit: In this transaction a person,
in whom a confidence is reposed, gains profits by availing himself of his
position. Equity refuses such person (fiduciary) to claim for himself the
profit which has been obtained by him in pursuance of his undertaking or
discharge of his own obligation.
- Fiduciary relationship induced by undue influence: Fiduciary
relationship is induced by undue influence, wherever two persons stand in
such a position that confidence is necessarily reposed by one and the
influence which naturally grows out of that confidence is possessed by the
other persons. In such circumstances the relation between the two parties is
such that one is in position to dominate the will of another, and thereby
takes undue advantage of his position.
- Fiduciary relationship induced by confidential influence: In this
transaction one person gives information to another person for certain
purposes of his own interest. The relation between doctors and patients,
solicitors, advocates and their clients and such other relations were one is
under obligation not to disclose confidential information given to him
(Section 126 of Indian Evidence Act).
Principles of Fiduciary Relationship:
In number of human transactions the fiduciary relationship is recognized and
enforced by law. Though there is no hard or fast role to determine the existence
of fiduciary relationship but the material test to determine the existence of
Fiduciary relation signifies some relation which has
some of the characteristics or incident of trust. There are certain principles
at the basis of fiduciary relationship. Fiduciary relationship covers variety of
different relations arising out of jural relationship. There are certain
principles underlined the fiduciary relationships which are as under:
- Fiduciary transaction must be good faith transaction: A fiduciary is a
person who is under confidential obligation, in whom a confidence is reposed
by another therefore; such person is always under obligation to safeguard
and protect the interest of that another person. It is immaterial whether
the confidential obligation arises from a contract or a gratuitous
undertaking. Section 111 of Indian Evidence Act provides rule of burden of
proof thereby where there is a question as to the good faith of a
transaction between parties, one of whom stands to the other in a position
of active confidence, the burden of proving the good faith of transaction is
on the party who is in a position of active confidence.
- Fiduciary must not: make profit at the cost of interest of beneficiary:
The general rule is that a fiduciary may not derive a profit for himself at
the expense of beneficiary whose interest is bound to protect. Whatever the
profit which comes to the fiduciary, must be handed over to the
beneficiaries as such profit belongs to the beneficiaries.
- Fiduciary must is not be a purchaser: It is a general rule that
fiduciary must not purchase the property held by him and under his control
for another. He is prevented from becoming the owner of the property of the
beneficiary which is given to him to exercise control over it for and on
behalf of the beneficiary. Such type of purchase if any, adversely affecting
the interest of beneficiary and hence, not recognized by the law.
- Fiduciary services are gratuitous in nature: The basic principle is that
a fiduciary undertakes to act voluntarily and is not give any remuneration
for his services unless contrary he is provided under the contract. The
principle of gratuitous nature of fiduciary services has been applied to and
generally governs all fiduciaries. The reason behind this principle is that
no person is entitled to payment simply for the reason that he has
undertaken to act in the interest of another person.
- Fiduciary office is onerous in nature: Fiduciary office is onerous and
hence, fiduciary to perform and to act for the protection of the interest of
the person whom is bound to protect as a matter of confidential obligation
he has undertaken to fulfill. Patna High Court in Rajendra Prasad v. RP. Sao (9)
held that a tenant for life, co-owner, mortgagee or other qualified owner of any
property all are under fiduciary relationship
Fiduciary relation generally arises out of the jural relationship wherein one
person reposes confidence in the other, where a person acts on behalf of another
is stands in a fiduciary relation. Fiduciary relationship, in generic sense can
be said, a situation where one person is under a confidential obligation to act
in the interest of another person. Fiduciary therefore is a person who is bound
to act in good faith and with due regard to the interest of one reposing the
Fiduciary relationship covers variety of relations having some common features.
Whether the relation between the two persons is of fiduciary or not, depend upon
the fact and circumstances of the case. The fiduciary relationship may arise out
of numerous human transactions, wherein a confidence is reposed by one person in
- Dr. R.K. Bangia, Law Of Torts, Including Compensation Under The
Motor Vehicles Act And Consumer Protection Laws (Allahabad Law Agency, edn.,
- Batuk Lal, The Law Of Evidence, ( Central Law Agency, 2018).
- Dinshaw F. Mulla, the Key to Indian Practice: A Summary of the Code of
Civil Procedure, 1908, (11th 2015).
- By ADAM BARONE, What Are Some Examples of Fiduciary Duty? Updated Sep
- AIR, 1960 Mad. 410.
- AIR, 1985, SC, 1646.
- AIR, 1965, Patna, 58.
- AIR, 1930, Allah. 615.
- AIR, 1964, All. 53.
- AIR, 1982, Mad. 228.
- AIR, 1982, HP, 57.
- AIR, 1959, A.R, 352.
- AIR, 1985, Patna, 104.
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