Section 88 of the Indian Trusts Act, 1882 – Fiduciary Advantage and Constructive Trusts

Section 88 of the Indian Trusts Act, 1882 – Fiduciary Advantage and Constructive Trusts

1. Introduction

Section 88 of the Indian Trusts Act, 1882 (hereafter “ITA 1882”) is the fulcrum of Indian fiduciary jurisprudence. It embodies an equitable maxim that “no one who stands in a position of trust shall make a profit out of that trust”. The provision statutorily crystallises a constructive trust whenever a person occupying a fiduciary position derives a pecuniary advantage for herself, or enters into a self-dealing transaction adverse to the beneficiary’s interests. The breadth of relationships attracted—trustee, executor, partner, agent, company director, legal adviser, or other fiduciary—makes Section 88 a pervasive tool to police conflicts of interest across private, corporate, and public spheres in India.

2. Statutory Framework

2.1 Text of Section 88

Where a trustee, executor, partner, agent, director of a company, legal adviser, 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, … he must hold for the benefit of such other person the advantage so gained.[1]

The section operates automatically; no formal declaration of trust is necessary. Once the factual matrix discloses (i) a fiduciary relationship, and (ii) a pecuniary advantage procured by leveraging that relationship, a constructive trust arises by force of law.

2.2 Interface with Cognate Statutes

  • Indian Partnership Act, 1932, s 16 replicates the rule for partners.
  • Companies Act, 2013, s 166(4)–(5) mandates directors to “avoid situations of direct or indirect conflict”; Section 88 supplies the remedial consequence.[2]
  • Benami Transactions (Prohibition) Act, 1988, s 3(3)(b) preserves fiduciary situations; the bar on benami pleas does not defeat a constructive trust under Section 88 (see P.V. Sankara Kurup).[3]

3. Jurisprudential Evolution

3.1 Early Conceptions: Obligations “in the Nature of Trusts”

The Madras High Court in Rajah of Ramnad v. Arunachellam Chettiar (1913) distinguished between an establishable obligation under Sections 86-94 ITA 1882 and an enforceable trust created by judicial intervention, emphasising that Chapter IX is captioned “Obligations in the Nature of Trusts”.[4] This foundational clarification still informs the mechanics of Section 88: the statute imposes—rather than creates—a trust, obviating traditional requirements of certainty.

3.2 Expansion and Consolidation

  • Mohamed Esuf Sahib v. Abdul Sathar Sahib (1918) applied Section 88 to trustees who re-granted resumed waqf property to themselves, holding that the newly acquired proprietary interest was held for the beneficiaries.[5]
  • DLF Universal Ltd. v. Arjun Singh (1985) is a seminal Delhi High Court pronouncement reproducing the entire section with illustrations and affirming that any fiduciary gaining an advantage “must hold it for the principal”.[6]
  • P.V. Sankara Kurup v. Leelavathy Nambiar (1994 SC) confirmed that an agent purchasing property in her own name for the principal attracts Section 88 despite the Benami Act, as the fiduciary exception in s 3(3)(b) applies.[3]
  • Canbank Financial Services Ltd. v. Custodian (2004 SC) broadened the scope, holding that Section 88 covers any relationship where confidence is reposed; concealment or unjust enrichment triggers the trust.[7]

3.3 Contemporary Applications

Recent decisions evidence Section 88’s vitality beyond classical trusts:

  1. Rajeev Saumitra v. Neetu Singh (2016 Del HC) used Section 88 against a company director who allegedly incorporated a rival entity. The Court juxtaposed s 166 Companies Act with s 88 ITA 1882, clarifying that while the former affords a personal remedy, the latter compels disgorgement of profits.[8]
  2. Periasamy Palani Gounder v. Radhakrishnan Dharmarajan (2022 NCLAT) invoked Section 88 to invalidate a resolution plan where a trustee-director of a charitable trust sought to derive financial gain, holding that the Code cannot countenance a plan that contravenes Section 88.[9]
  3. Treesa Irish v. CPIO (2010 Ker HC) recognised the fiduciary bar against profiteering in the context of Right to Information, illustrating Section 88’s influence on statutory confidentiality exemptions.[10]

4. Analytical Themes

4.1 Fiduciary Character: Test and Boundaries

The Supreme Court in Canbank described the “heart and soul” of Section 88 as the duty to protect another’s interests.[7] Two cumulative elements emerge:

  • Existence of confidence. Relationship-specific (trustee-beneficiary) or ad-hoc (receiver under court order). Although receivership jurisprudence (T. Krishnaswamy Chetty) is not predicated on Section 88, the receiver’s custodial duties mirror the fiduciary template—reinforcing how equity supervises property even pendente lite.[11]
  • Pecuniary advantage causally linked to fiduciary position. Anything from undervalue purchases (Illus. A) to corporate opportunity appropriation qualifies.

4.2 Constructive Trust as a Disgorgement Mechanism

Section 88 does not merely impose personal liability; it impresses the property or gain with a constructive trust, enabling proprietary remedies such as tracing, following, and subrogation. This has palpable tax implications (Official Trustee of West Bengal v. Stephen Court Ltd. and CIT v. Kamalini Khatau) where trustees’ receipts are treated not as beneficial income but as custodial property.[12]

4.3 Limitation and Enforcement

Because the trust is “deemed”, the cause of action accrues upon knowledge of the wrongful gain. Nevertheless, Rajah of Ramnad cautions that formal judicial invocation is necessary within limitation to convert the inchoate obligation into an enforceable decree.[4]

4.4 Overlap with Statutory Remedies

Section 88 remedies coexist with statutory claims under the Partnership Act, Companies Act, and Insolvency and Bankruptcy Code. Courts have declined to treat one as excluding the other; rather, Section 88 supplies the equitable disgorgement overlay absent in many statutes (e.g., s 166(5) Companies Act is compensatory, not proprietary).

5. Doctrinal Critique

While Section 88 robustly guards against fiduciary profiteering, two doctrinal tensions persist:

  1. Conceptual Ambiguity. The chapter heading—“Obligations in the Nature of Trusts”—creates uncertainty about whether a full-fledged trust arises ipso jure or only a remedial obligation pending judicial declaration.
  2. Interface with Corporate Governance. Statutory codification of directors’ duties in the Companies Act, 2013, has not expressly adopted the proprietary disgorgement remedy, leaving Section 88 to fill the lacuna. Legislative harmonisation could enhance clarity.

6. Conclusion

Section 88 ITA 1882 remains a cornerstone of Indian equitable jurisprudence, transcending classical trust law to permeate corporate, partnership, agency, and even insolvency regimes. The provision’s strength lies in its automatic imposition of a constructive trust, ensuring fiduciaries cannot cloak misappropriated gains behind formal title. Courts—from the Madras High Court in 1913 to the NCLAT in 2022—have consistently reaffirmed the section’s deterrent and remedial potential. Future statutory reforms should preserve this equitable core while clarifying procedural aspects of enforcement to fortify fiduciary integrity in India’s evolving commercial landscape.

Footnotes

  1. Indian Trusts Act, 1882, s 88.
  2. Companies Act, 2013, s 166(4)–(5).
  3. P.V. Sankara Kurup v. Leelavathy Nambiar, (1994) 6 SCC 68.
  4. Rajah of Ramnad v. A.L.A.R.R.M. Arunachellam Chettiar, (1913) ILR 36 Mad 552.
  5. Mahomed Esuf Sahib v. Abdul Sathar Sahib, 1918 SCC OnLine Mad 266.
  6. DLF Universal Ltd. v. Arjun Singh, Delhi HC, 1985.
  7. Canbank Financial Services Ltd. v. Custodian, (2004) 8 SCC 355.
  8. Rajeev Saumitra v. Neetu Singh, (2016) SCC OnLine Del 5008.
  9. Periasamy Palani Gounder v. Radhakrishnan Dharmarajan, 2022 SCC OnLine NCLAT 86.
  10. Treesa Irish v. CPIO, (2010) SCC OnLine Ker 484.
  11. T. Krishnaswamy Chetty v. C. Thangavelu Chetty, 1954 SCC OnLine Mad 374.
  12. Official Trustee of West Bengal v. Stephen Court Ltd., (2006) 5 SCC 45; CIT v. Kamalini Khatau, (1994) 209 ITR 101 (SC).