Bachawat, J. - (1.) One James Henry Wapshare owned several estates incluing Naduvattam in the Nilgiris known as the Ouchterlony Valley Estates, having tea, coffee, cardamom and cinchona plantations. He lived in Naduvattam and Ootacamund with his wife Nellie, daughters Violet and Dorothy and sons James and Edward. In 1927 he formed a limited company known as the Ouchterlony Valley Estates Limited, having a share capital of Rs. 15 Lakhs and conveyed the estates to the company. All the shares of this company, sometimes referred to as the "old company" were held by him and the members of his family. The company borrowed Rs. 10 1/2 lakhs from the Imperial Bank of India against the issue of debentures. The loan was secured by a mortgage of the estates under a debenture trust deed dated May 13, 1927 and was repayable on May, 15, 1937. In default of payment within November 15, 1937 the trustee under the debenture trust deed was authorised to enter into possession of the estates and sell them. By an agreement dated August 16, 1936 Pierce Leslie and Co. Ltd., referred to as the appellant company, was appointed as the secretary of the old company. On April 15, 1937 the old company was served with a notice that in default of payment of the loan within November 15, 1937 the trustee for the debenture holders would take possession of the estates and sell them. On May 18, 1937 James Henry Wapshare died leaving behind him his widow and his sons and daughters. In November 1937 after prolonged negotiations between the Wapshares and the appellant company it was settled that the company would purchase all the estates except Naduvattam for Rs. 10 lakhs. On December 29,1937 formal agreements were executed providing that the old company would convey to the appellant company all the estates except Naduvattam for Rs. 10 1/2 lakhs and the appellant company would convey Naduvattam to Mrs. Nellie Wapshare for Rs. 50,000 and would at the same time advance Rs. 50,000 on the hypothecation of Naduvattam crops. By January 10, 1938 the appellant company paid the entire purchase price and took possession of the estates and the entire dues of the Imperial Bank of India were liquidated. On March 30, 1938 the old company passed a special resolution for its voluntary winding of and appointed Capt. F. Murcutt as its liquidator. The appellant company promoted a new company known as Ouchterlony Valley Estates Ltd., for the purpose of acquiring the estates. The new company was incorporated on September 5, 1938. Fifty percent of its shares were held by the appellant company. Formal conveyances of the Naduvattam estate in favour of Mrs. Nellie Wapshare and of the other estates in favour of the new company were executed by the old company between January and May 1939. On the the execution of the conveyances the new company entered into possession of the estates conveyed to them. As soon as the affairs of the old company were wound up the liquidator made up the final accounts of the winding up and called the final meetings of the company and its creditors. On or about November 29, 1939 a copy of the final accounts and the return of the holding of the meetings were filed with the registrar of joint stock companies and were registered under S. 209 H of the Indian Companies Act, 1913. In view of S. 209 H (4) the old company stood dissolved with effect from March 1, 1940. On December 21, 1950 Mrs. Nellie, Violet, Dorothy James and Edward Wapshares instituted the present suit against the appellant company, impleading the appellant company as defendant No. 1, 12 persons said to be its directors and officials as defendants 2 to 13, Capt. F. A. Murcutt as defendant No. 14, the new company as defendant No. 15 and the old company as defendant No. 16. The plaintiffs prayed for a decree dealing that the old company had not been wound up in accordance with law and was still in existence as a corporate personality, a declaration that the old company was the real owner of the aforesaid properties and the new company held them in trust for the old company, a decree vesting or re-transferring the properties to the old company and alternatively to the plaintiffs an accounts. The plaintiffs alleged that the appellant company as the secretary and manager of the old company was bound in a fiduciary character to protect its interest and by availing itself of this character gained pecuniary advantage by purchase of the properties from the old company in 1939, that the agreement for sale and conveyances in respect thereof were induced by fraud, fraudulent concealment, misrepresentation, undue influence and improper means, that the new company was controlled by the appellants, that all the defendants were privy to the fraud, that the winding up of the old company was procured by the defendants fraudulently, that the plaintiffs discovered the fraud in September 1949, and the plaintiffs were the only shareholders of the old company and as such were entitled to maintain the suit. Defendants 4, 11 and 14 died during the pendency of the suit. The defunct old company impleaded as defendant No. 16 did not appear but the other defendants contested the suit. The Subordinate Judge, the Nilgiris, Ootacamund, dismissed the suit. He held that (1) there was no fiduciary relationship between the appellant and the old company; (2) the impugned agreements and conveyances were not induced by fraud, fraudulent concealment, undue influence or improper means and were valid and binding on the old company and the plaintiffs; (3) the suit was barred by limitation; (4) the old company was dissolved in accordance with law and was not in existence, and (5) the plaintiffs had no locus standi to maintain the suit. The plaintiffs field an appeal from the decree. The Madras High Court allowed the appeal in part and passed a decree asking the appellant to pay to the plaintiff's Rs. 1,50,000. The High Court held that (1) there was a fiduciary relationship between the appellant and the old company; (2) the appellant by availing itself of its fiduciary character gained a pecuniary advantage of Rs. 1,50,000 and to the extent of this unjust enrichment was bound to reimburse the plaintiffs; (3) the suit was not barred by limitation and (4) in spite of the dissolution of the old company the plaintiffs were entitled to maintain the suit. Aggrieved by this decree the appellant company filed C. A. No. 1174 of 1965 and the Wapshares have filed the cross-appeal C.A. No. 1935 of 1966 on the strength of certificates granted by the High Court under Article 133 (1) (d) of the Constitution.
(2.) The following 3 questions arise in these appeals:- (1) was there a fiduciary relationship between the appellant and the old company, and if so, did the appellant company by availing themselves of this fiduciary character gain a pecuniary advantage of Rs. 1,50,000; (2) is the suit barred by limitation:and (3) are the plaintiffs as shareholders of the old company entitled to maintain the suit.
(3.) It is a settled rule of equity that any person bound in a fiduciary character to protect the interests of another person should not put himself in a position where his interest and duty conflict. If by availing himself of his fiduciary character or by entering into any dealings under circumstances in which his interests are or may be adverse to those of such other person he gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained, see Trusts Act, Section 88. But there is no rule which incapacitates a trustee from dealing with a cestui que trust. In Coles vs. Trecothick, (1804) 9 Ves 234 (247) = 32 ER 592 (597) Lord Eldon said: "a trustee may buy from the cestui que trust, provided there is a distinct and clear contract, ascertained to be such after a jealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended, the trustee should buy; and there is no fraud, no concealment, no advantage taken, by the trustee of information acquired by him in the character of trustee. I admit, it is a difficult case to make out, whenever it is contended that the exception prevails." As stated in Kerr on Fraud and Mistake, 6th Ed. page 192:- "Thus a trustee for sale may purchase the trust estate, if the cestui que trust fully and clearly understands with whom he is dealing and makes no objection to the transaction, and the trustee fairly and honestly discloses all that he knows respecting the property and gives a just and fair price, and does not seek to secure surreptitiously any advantage for himself. The onus however, rests upon the trustee, and he is bound to produce clear affirmative proof that the parties were at arms length, that the cestui que trust had the fullest information upon all material facts, and that having this information he agreed to and adopted what was done." ;