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 Relation 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 existence.

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 dimensions.

1. Classification on the basis of human transactions

i) 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 purchaser.

ii) Fiduciary relationship in commercial transaction

1. 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.
    
2. 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.
    
3. 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.

iii) Fiduciary relationship in domestic transaction: There are number of domestic transactions which are based on confidential relationship, in such family relations there exists a fiduciary relationship:

1. 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.
    
2. 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.

iv) Fiduciary Relationship in professional transaction: Persons taking 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.

This 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, Contractors, (8) it was held that licencees appointed on remuneration to purchase stocks on behalf of government stand in fiduciary position.

In this case Court recognized and applied following three principles:

1. Where a person using his official position earns money, the Government has right to the money, even though no loss has been caused.
2. There exists a fiduciary relationship between the officer and the Government.
3. A person who enriches or benefits himself unjustly is obliged by the ties of natural justice and equity to refund the money so gained.

vii) Fiduciary relationship in other confidential transactions to be made out by circumstances:
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 confidential dimensions:

Following fiduciary relations are classified according to confidential dimensions in different shades:

1. 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.
    
2. 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.
    
3. 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.
    
4. 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.
    
5. 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 relationship.

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:

1. 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.
    
2. 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.
    
3. 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.
    
4. 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.
    
5. 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

Conclusion:
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 confidence.

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 another.

Reference:

1. Dr. R.K. Bangia, Law Of Torts, Including Compensation Under The Motor Vehicles Act And Consumer Protection Laws (Allahabad Law Agency, edn., 2018).
2. Batuk Lal, The Law Of Evidence, ( Central Law Agency, 2018).
3. https://www.legalmatch.com/law-library/article/fiduciary-relationship.html
4. Dinshaw F. Mulla, the Key to Indian Practice: A Summary of the Code of Civil Procedure, 1908, (11th 2015).
5. By ADAM BARONE, What Are Some Examples of Fiduciary Duty? Updated Sep 11, 2019.,https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp
   

End Notes:

1. AIR, 1960 Mad. 410.
2. AIR, 1985, SC, 1646.
3. AIR, 1965, Patna, 58.
4. AIR, 1930, Allah. 615.
5. AIR, 1964, All. 53.
6. AIR, 1982, Mad. 228.
7. AIR, 1982, HP, 57.
8. AIR, 1959, A.R, 352.
9. AIR, 1985, Patna, 104.