Fiduciary duty and secret profits: principal may recover an agent's unauthorized gains as an equitable account of profits.

Pre-Amendment agency terms permitting commissions and separate remuneration remain enforceable where the agency agreement predates the Amendment; challenge to such additional payments fails. Payments made by the company to third parties engaged by the managing agent cannot be recovered from the agent's estate where the third party contracted with the agent and acted as the agent's contractor. Profits the managing agent gained by exploiting his fiduciary position and company resources constitute secret profits recoverable as an equitable account of profits; that remedy is governed by the limitation provision applicable to fiduciary secret-profit claims and the company's suit was timely. Relief was apportioned accordingly.

---

---

Issues: (i) Whether the managing agent was entitled to retain and the company liable to pay commissions and other remuneration over and above the remuneration fixed by the pre-commencement agency agreement; (ii) Whether the company could recover from the managing agent's estate the sum of Rs. 4,500 paid to Messrs. Parry & Co.; (iii) Whether the company was entitled to recover Rs. 8,510 representing profit gained by the managing agent on sugar transactions and whether that claim was barred by limitation.

Issue (i): Entitlement to additional commissions and remuneration under the agency agreement executed before the commencement of the Indian Companies (Amendment) Act, 1936.

Analysis: The agency agreement dated 16 November 1936 provided for commissions and for separate remuneration for other services; the Amending Act and section 87-C apply only where a company appoints a managing agent after the commencement of the Amending Act. The agreement preceded the commencement of the Amending Act and no pre-Amendment law prohibited stipulation for additional remuneration.

Conclusion: The managing agent was entitled to the additional commissions and remuneration claimed; the appellant's challenge on the basis of section 87-C fails. The appeal on this point is dismissed.

Issue (ii): Recoverability from the managing agent's estate of Rs. 4,500 paid to Messrs. Parry & Co. who acted under engagement arranged by the managing agent.

Analysis: The contractual arrangement for Parry & Co. was between the managing agent and Parry & Co.; though the directors subsequently sanctioned payment from company funds, evidence shows Parry & Co. acted as agents of the managing agent and not originally of the company. There is no legal principle establishing the company's right of recovery from the managing agent for that payment.

Conclusion: The company's claim for Rs. 4,500 against the managing agent's estate is unsustainable and must fail.

Issue (iii): Recoverability of Rs. 8,510 which the managing agent gained by purchasing controlled-price sugar and selling at a higher controlled outside price, and application of limitation (Articles 36, 90, 120).

Analysis: The profit arose from the managing agent availing himself of his fiduciary position and using company premises, staff and credit to make a pecuniary gain. Such gains are governed by the equitable principle reflected in section 88 of the Trusts Act and are to be held for the benefit of the principal. Articles 36 and 90 of the Limitation Act are not appropriate: Article 36 relates to tortious compensation actions; Article 90 concerns neglect or misconduct intimately connected with agency duties and secret profits by an agent in that sense. The claim is properly one for recovery of a fiduciary advantage and falls under Article 120. The suit filed in December 1945 was within six years of the 1942 transactions.

Conclusion: The company is entitled to recover Rs. 8,510 less Rs. 2,406-1-0 debited for godown rent; decree to bear interest at six per cent per annum from date of suit. The appeal is allowed on this point.

Final Conclusion: The appeals are partly allowed: the company fails in its challenge to the validity of additional commissions and in recovery of the Parry & Co. payment, but succeeds in recovering the profit of Rs. 8,510 (subject to the deduction for godown rent) with interest; costs to be apportioned.

Ratio Decidendi: Where a person in a fiduciary capacity gains a pecuniary advantage by availing himself of that position, equity requires that the advantage be held for the benefit of the principal and be recoverable as an equitable account of profits, subject to applicable limitation under Article 120.

---