This article has been written by Diva Rai and Ria Verma and further updated by Soumyadutta Shyam. In the article, Section 17 of the Indian Contract Act, 1872 which defines fraud in contracts has been discussed. This article discusses the various facets of fraud along with the remedies available under the Indian Contract Act, 1872 for a contract entered into by fraudulent means. 

Introduction

One of the important stipulations for a valid contract under Indian law is that, the contract should be entered into between two competent parties by free consent. Consent has been elucidated under Section 13 of the Indian Contract Act, 1872 as two or more parties agree upon the same thing in the same sense. As per Section 14 of the aforementioned Act, consent shall be deemed free when it is unaffected by coercion, undue influence, misrepresentation or fraud.

Fraud may be defined as any deceptive act which may result in an unfair advantage or personal gain by the person committing such act. Such deceptive acts are generally considered wrongful in commercial and contractual arrangements as such acts may result in financial loss or damage to the party who has been a victim of such deception.

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Definition of fraud under Section 17 of the Indian Contract Act, 1872

Fraud, as elucidated in Section 17 of the Indian Contract Act, 1872,  implies and involves any of the acts mentioned below perpetrated by a contracting party or with his involvement or by his agent with the objective of deceiving or misleading another party or his agent to enter into the agreement. The acts which constitute fraud under this provision are as follows:-

  • The suggestion, as a fact, of something which is not true by someone who does not believe in its truth.
  • The active concealment of a fact by one having knowledge or belief of the fact.
  • A promise without any intent of carrying it out.
  • Any other act which may mislead the other party.
  • An act or omission which the law specifically declares to be fraudulent.

Mere silence in relation to facts which may influence the willingness of a person to enter into a contract is not fraud. However, if the circumstances of the case are such that, having regard to them, it is the duty of the person keeping silent to speak, or unless his silence, is in itself, equivalent to speech, in such circumstances the silence itself may be deemed fraudulent. 

Section 17 explains fraud and mentions the acts that amount to fraud, which are a false suggestion, active concealment, promise lacking any intention of carrying it out, any other deceptive act, or any act declared fraudulent. 

In the English case, Derry vs. Peek (1889), it was said that, “fraud” is proved when it is shown that a false representation has been made:

  • Knowingly, or
  • Without belief in its truth, or
  • Recklessly careless whether it be true or false.

In simple terms, “fraud” refers to deliberate deception perpetrated with the intent to induce another party to act to their detriment. As far as contracts are concerned, fraud can manifest in various forms such as false representations, concealment of facts, deceptive claims etc.

Ingredients of Section 17 of the Indian Contract Act, 1872

Now let’s understand the ingredients of Fraud under Section 17 of the Indian Contract Act, 1873; which are as follows:-

  • False suggestion or assertion without belief in its truth.
  • Active concealment of a fact by one having knowledge of the fact.
  • Promise made without any intention of performing it.
  • Any other act fitted to deceive.
  • Any act or omission declared to be fraudulent by law.

False suggestion or assertion without belief in its truth 

To establish a case of fraud, it must be demonstrated that representations made were deceptive to the knowledge of the party making them. The statement should be false in subject and in fact. To institute fraud, it is important that the statement was made by the person interested in knowledge of its inaccuracy, or without belief in its truth. Ignorance as to the truth or falsehood of material assertion, that, turns out to be false, is also considered equal to the knowledge of its falsehood. 

Take for instance, Mr. Raju is in the business of selling mobiles. Mr. Raju sells a mobile to Mr. Shyam claiming that it is waterproof. Mr. Raju does not believe that the mobile is waterproof, however, he makes a false assertion to Mr. Shyam in order to sell the mobile.  

Representation 

A representation is a statement of fact and is different from an opinion, however a statement of opinion may be deemed as a statement of fact in specific circumstances. In Lilly Kutty vs. Scrutiny Committee, S.C and S.T And Ors.(2005), a false certificate was obtained in order to take unfair advantage. It was held that fraud invalidates every honest act. Fraudulent acts are not encouraged by the courts. Any action by the authorities or by the people claiming a right under the Constitution of India which subverts the constitutional purpose must be treated as a fraud on the Constitution.

False representation denotes the act of making any indication, statement or any other representation with the objective of deceiving the other party. In other words, it is an act of deception by knowingly providing false information. The distinction between innocent misrepresentation and fraudulent misrepresentation is that, while innocent misrepresentation is made inadvertently, fraudulent misrepresentation is made deliberately. We can understand false representation better with the example given below. 

Aman, a vegetable vendor sets a cart and fixes a board on the cart saying “Organic Vegetables”. He knows that the vegetables are not “Organic” and have grown using chemical fertilisers and pesticides. Thus, he makes a false representation to his customers.

In Ram Chandra Singh vs. Savitri Devi And Ors. (2003), the Supreme Court observed that a fraudulent misrepresentation is called deceit and consists in leading a man into damage wilfully or recklessly causing him to believe and act on falsehood. It is fraud, if a party makes representations which he knows to be false, and injury ensues from there.  

In Noorudeen and Ors. vs. Umairathu Beevi And Ors. (1998), the defendant executed the sale deed of the plaintiff’s property by making a false representation that it was a hypothecation deed. The Kerala High Court ruled that it was a case of fraud and misrepresentation. The Court observed that the plaintiff was a vulnerable individual due to his visual impairment, which made him susceptible to fraud. The defendant was the plaintiff’s son, thus, occupying a position of trust, that he betrayed by deceiving his father.

Reckless statements

Proof of absence of genuine belief is all that is required to indicate the presence of fraud, whether the representation is made recklessly or intentionally. Even ignorance or negligence on part of the representor as to the truth or inaccuracy of the representation may amount to fraud in certain circumstances. Statements made without belief in the truth would include statements made recklessly. Misrepresentation as to title made by vendors recklessly or with gross negligence cannot escape the charge of fraudulent misrepresentation. 

For example, A man selling a herbal remedy called “Stanley’s Tincture” claiming that it cures all diseases, without testing its efficacy. Such a statement has been made recklessly.

Ambiguous statements

Where the representer makes an ambiguous statement, the person to whom it is made must prove that he understood that statement in the sense that it was in fact false. The representor will be guilty of fraud if he meant the statement to be comprehended in that sense, and not if he honestly believes it to be true, but the person relying on it understands it in a different sense. Once it is held that the representation was fraudulent under this clause, the exception in Section 19 of the Indian Contract Act, 1872  is of no use, and the question whether the person alleging fraud had or had not the means of finding out the truth with common diligence, is irrelevant.

For example, a person selling a laptop computer tells the other that it has a lot of memory space, without mentioning the specifics. Such a statement can be considered as ambiguous.

Active concealment

Active concealment is distinct from just passive concealment. Passive concealment denotes only silence as to material facts, whereas active concealment of a material fact is a fraud. Active concealment, in this context, means deliberately hiding or concealing a material fact relating to the contract. It is an intentional act to stop the other party from finding the truth. For example, if a husband persuades his illiterate wife to sign on a sale deed for a property belonging to her, by telling her that it is a loan agreement, it would amount to active concealment.

Just non-disclosure of some minor facts would not actually afford a right to recission until it is further revealed that the consent has been obtained by using some deception. If a seller sold property already sold by him to a third person, his behaviour amounted to active concealment and fraud, and the buyer could recover the price despite the agreement that the seller could not be responsible for a defect in title.

Promise without intention of performing it

To bind a party to a promise without any intent of performing one’s own part and with the intent of just stopping the other party from dealing with others, is an instance of performing it. To constitute fraud under this clause the guilty party must know that they will not be able to perform it.

Making a promise devoid of any intention of carrying it out is fraud, though not so under the English law. To bring the case under the purview of this clause, it must be established that the promisor had no desire of performing the promise at the time of making it, and any subsequent conduct or representation is not accounted for this purpose.

Any other act fitted to deceive

Another type of fraud recognised under Section 17 is any other kind of act which may deceive the other party. The expression “Any other act fitted to deceive” can be interpreted as any act which is done with the apparent objective of committing fraud. It mentions other fraudulent acts not expressly mentioned under this provision. Under this Section two types of fraud are mentioned:

  • Actual or positive fraud which comprises cases of intentional or deliberate use of any misleading or deceptive means to cheat or defraud the other party.
  • Constructive or legal fraud comprises such contracts or acts although not originating in any actual wrong intention or plan to commit a fraud, but, by their likelihood to deceive or misinform others, or to infringe private or public trust are forbidden by law.

Any act or omission declared to be fraudulent by law

The last category includes cases where the law expressly declares an act or omission to be fraudulent. For instance, the Insolvency and Bankruptcy Act, 2016 and Companies Act, 2013 declare some types of transfer to be fraudulent in nature. 

The purpose of this clause is to include all acts which under any other law are deemed fraudulent. For instance, in Insolvency law there is the concept of fraudulent preference and under the Transfer of Property Act, there is the concept of fraudulent transfer. The words used in the clause are for the purpose of ensuring that all types of intentional cheating are covered.

Mere silence is not fraud

False impressions are generally made through intentional misrepresentation of facts. However, it is also committed through active concealment. Generally, only silence is not fraud, even though its outcome is the concealment of facts to enter into a contract. A contracting party has no obligation to reveal the full truth to the other party or to provide the other party full information in his possession influencing the substance of the contract.

Silence about facts is not fraud per se. Unless there is an obligation to talk or if it is equal to expression, mere silence is not fraud. This rule has two skills. First, suppressing portions of the relevant facts may mislead the assertion of the remainder, although actually true as far as it goes. In such a case, the declaration is substantially incorrect, and fraudulent is the willing rejection that makes it so. Secondly, commercial use may impose an obligation to disclose specific flaws in products sold or the like. In such a situation, failure to mention such a defect is equal to a statement that there is no such defect.

Silence usually does not support a fraudulent action. Although, when silence is taken into account with the facts of a specific case, it may constitute misrepresentation. While courts are willing to engage with various factual circumstances to ensure that parties’ intentions are upheld, prudence is always key to reducing the commercial risks and potential litigation in the formulation of contracts. 

Just silence or suppression of facts would not amount to a wrongful act except when the defendant is under a duty to talk and hide the facts of a specific transaction or trade. Therefore, mere silence amounts to fraud, when the facts of the case are such that the individual has an obligation to speak and inform the other party of the facts, but they remain silent or the party’s silence is equivalent to expression. The other party to the contract is misled and suffers damages as a consequence. 

Circumstances when silence amounts to fraud

There are some circumstances where the silence, i.e, the non-disclosure of facts is deemed to be significant to the contract and the act of hiding or not revealing the substantial facts is misrepresentation. The more genuine the defect, the more it is covered up, and the more harmful it is to the individual – the more likely the courts will consider the party’s silence as fraud. 

Duty to disclose facts

The first instance, where silence can be held to be the reason for fraud is in situations where there is an obligation by the other party to reveal facts about a specific case. This obligation to speak arises when one party makes an offer and the other party accepts. Such an obligation is also present, when one of the parties does not have the intellect or the resources to find out the truth and is reliant  on the integrity of the other parties. 

A contract where such duty arises is uberrima fides, i.e, a contract made in good faith. An example would be a contract of insurance, wherein it is the duty of the insured to inform the insurance agent of all the relevant facts to the risk that is being covered. There must be complete good faith on the part of the assured. 

In Rajesh Kumar Choudhury vs. United India Insurance Co. Ltd, And anr (2005), the party did not disclose that they applied for insurance for their property on similar grounds but had been rejected by the same company. This non-disclosure was held as a suppression of a material fact. 

The burden of proof lies on the insurer and they need to show that facts were suppressed by the insured, and that they were of material nature to the risk that was to be covered. They also need to prove that the insured concealed the facts with the intention of misrepresenting the risk undertaken by the insurer. 

Some instances where mere silence amounts to fraud are as follows:

Contract of immovable property

Under Section 55(i)(a) of the Transfer of Property Act, 1882, the seller is under an obligation to reveal to the buyer any substantial flaw in the property or in the seller’s title of which the seller is aware. It must be highlighted that the buyer is not aware of that particular defect and cannot foresee or disclose it as a reasonable person. 

Contract of marriage

The parties to a contract of marriage are obligated by a duty to disclose every material fact. If the correct facts are not disclosed, the other party can cancel the engagement and cancel the contract. In the case of Anurag Anand vs. Sunita Anand (1996), it was held that caste, income, age, nationality, religion, educational qualifications, marital status, family status, financial status, would be considered as material facts and circumstances. 

Therefore, when the consent of one party to the marriage is obtained fraudulently by concealing a material fact concerning the other party, this is voidable at the option of the first party. A decree of nullity can be obtained to annul the marriage. This is in accordance with Section 12 (i)(c) of the Hindu Marriage Act, 1955 and Section 25 of the Special Marriage Act, 1954. 

When silence is deceiving

Silence can in some circumstances be deemed equal to speech. Herein, a person who remains silent despite being aware that his silence can be deceptive is not innocent and can be declared guilty of fraud. For example, the buyer knows the property’s actual worth but conceals this fact from the seller. The seller has the option to rescind the sale as it is void.

If for example, Mr. Jay knows the fact that an insolvent decree is validly declared. He suppresses this fact and convinces the Official Assignee to assign it at 10 percent of its face value to him. Here, Jay makes the representation that the decree is unrealisable. He does not have an obligation to reveal that the security is fully secured. Although, he makes a false statement that the decree is almost unenforceable with the object of deceiving the assignee. Therefore, his silence would amount to fraud. 

Change of circumstances

Some of the time a portrayal is genuine when made, yet, it might, on account of a difference in conditions, become bogus when it is followed upon by the other party. In such conditions, it is the obligation of the individual who made the portrayal to convey the difference in conditions. 

In T.S. Rajagopala Iyer vs. The South Indian Rubber Works Ltd, Coimbatore And Ors. (1942), a company’s prospectus showed that certain individuals would be the company’s directors. However, before the allotment, some directors had retired and there were changes in the directorate. The Madras High Court said that the non-communication of the change in the directorate was enough for an allottee to avoid the allotment. 

Half-truths

In any event, when an individual is under no obligation to unveil reality, he may turn into blameworthy misrepresentation by non-divulgence if he intentionally reveals something and at that point stops a large portion of the way. An individual may keep quiet, yet on the off chance that he talks, an obligation emerges to unveil every bit of relevant information.

In R.C.Thakkar vs. (The Bombay Housing Board by its Successors) Now the Gujarat Housing Board (1972), false estimates were provided in a tender. The contractor, in the belief that the estimate was correct, reduced the costs. The court held that the representations made in the tender amounted to misrepresentation. The defendants could not take the defence that the plaintiff could have deduced the actual costs by reasonable efforts.

Guarantee obtained by keeping silence to material circumstances

Section 143 of the Indian Contract Act, 1872 invalidates a guarantee obtained by willful silence as distinguished from mere non-disclosure. The creditor had the duty to give the surety precise and accurate information of all the relevant material facts.

As per the provision, it should be established that not only was silence observed to material circumstances but  the guarantee was also acquired because of the same.

For example, an employer guarantees that the servant is honest and hardworking. However, he concealed the fact that the servant is also employed elsewhere and is guilty of acts such as dishonesty. Here, the past conduct of a servant is a material fact and should be disclosed to the other employer. 

Duty to speak

There is an obligation to speak in case of contracts uberrima fides i.e, contracts of utmost good faith. One of such cases is when one party places trust and reliance on the other. Such duty of disclosure will follow in all instances where one party relies on the other. Duty to speak also ensues when one party has no means of finding the truth and has to rely on the good intention of the other party. For instance, an insurance company has very little information about the circumstances of the assured. Thus, it is the obligation of the assured to provide all important facts affecting the risk covered. It is for this reason that contracts of insurance are called contracts of absolute good faith, i.e, “uberrima fides.”

In the case of, P. Sarojam vs. L.I.C, of India (1985) two insurance policies were taken out by the appellant’s husband one for Rs. 40,000/- and another for Rs. 1,35,000/- from Life Insurance Corporation of India. In both the policies the appellant was the nominee. After the death of the husband, the appellant demanded payment of the amounts from the two policies. The defendant revoked the policies as they were acquired by fraud and by suppressing material facts relating to the insured person. The appellant filed a suit for recovery of the amounts from the two policies .The subordinate court held that the policies were made without revealing material facts relating to the health of the insured and thus the defendant was entitled to revoke the contracts of insurance. 

Subsequently, an appeal was preferred to the High Court. The insured was suffering from a heart disease at the time when the proposals were made for life insurance. The false answers to questions in the proposal form given by the insured invalidated the contract of the insurance. The High court said that, as the contract of insurance is uberrima fides, the proposer had an obligation to reveal all important facts relating to his health to the defendant.

There is no obligation as such to reveal facts that are or might be equally within the means of knowledge of the parties. In Bell vs. Lever Bros(1932), the company agreed to pay large compensation to two employees, the subsidiary company directors, whose services were being dispensed with. After paying the money, the company discovered that the directors had committed breaches of duty, which would have justified their dismissal without compensation. The House of Lords laid down that the directors had not these breaches in mind, and were under no duty to disclose them.

No fraud

If the party alleging fraud had the facts before it or had the means to know them, they cannot be said to have been defrauded, even if a false statement has been made. Further, a contract cannot be rendered invalid merely on a trivial and inconsequential misstatement or non-disclosure. In Janaki Amma And Ors vs. Raveendra Menon And Ors(1981), where the plaintiff was aware of the contents of the Will of her father, the partition of property on the death of the father and mother was not set aside for the fraud of not disclosing the contents of the Will; and no fresh partition was ordered.

Evidence and burden of proof in case of fraud

In most of the cases, fraud is not capable of being proved by positive and tangible proof. It is by its very nature secret in its movements. It is, therefore, sufficient if the evidence given is such as may lead to interference that fraud must have been committed. In most cases, circumstantial evidence is the only resource in dealing with questions of fraud. If this were not allowed, the ends of justice would be constantly, if not invariably, defeated.

At the same time, the interference of fraud is to be drawn only upon an intentional wrongdoer. Being a restitutionary remedy, all actual losses flowing from fraud are recoverable, even if they could not have been reasonably foreseen; subject to the rule of mitigation by the defrauded party. Nor would the damages be reduced on account of contributory negligence.

Effect of fraud

A contract, consent to which is acquired by fraud, is voidable under Section 19 of the Indian Contract Act, 1872. The party deceived has the choice to affirm the contract and plead that he should be put in the situation in which he would have been if the representations were true, or he may rescind the contract to the degree it is not executed. Upon rescission, he is liable to reinstate the benefit received by him under Section 64 of the said Act and may recover damages. 

The measure of damages recoverable is essentially that applicable in case of tort, ie, all the actual loss directly resulting from the transaction included by the fraud, including the consequential loss, and not merely the loss which was reasonably foreseeable. Where a document, which was intended to be in favour of a particular person but, as a result of fraud of the defendant, conveyed to someone else, the transaction would be also voidable as per Section 19.

Proving fraudulent intent

An important question here is how can we prove that the contracting party remained silent and did not disclose the relevant material facts. The party who has suffered damages must show that:

  1. The defendant did not reveal material facts pertaining to the subject matter of the contract.
  2. The defendant had full knowledge of the facts. 
  3. The defendant’s failure to reveal the facts resulted in a false impression in the plaintiff’s mind. 
  4. The defendant had the knowledge that his failure to reveal the material facts would cause a false impression and the plaintiff would depend on the false impression.
  5. The plaintiff depended on the impression and incurred damages as a consequence. 

Voidability of agreements and fraud under the Indian Contract Act, 1872

Section 19 of the Act, deals with voidability of contracts in the absence of free consent. It states if the consent to an agreement is acquired by coercion, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent has been acquired in such manner. 

According to this provision, contracts that are induced through fraudulent misrepresentation or concealment of material facts, the aggrieved party may seek to invalidate the contract and recover damages for any losses suffered.

A party to a contract whose consent was obtained by fraud or misrepresentation, can, if they think fit, plead that the contract shall be performed, and that they shall be put in the position in which they would have been if the representation made was true. Let’s take for instance, A fraudulently informs B that A’s estate is free from encumbrance. B, subsequently buys the estate. However, the estate is subject to a mortgage. In this situation, B may either avoid the contract or may insist on it being performed and the mortgage debt redeemed. 

However, if the consent to the contract was obtained by misrepresentation or through silence declared as fraudulent within the meaning of Section 17, the contract shall not be voidable, if the party whose consent was obtained in such manner had the means of finding out the truth with ordinary diligence. Thus, a contract shall not be rendered void only on flimsy grounds. Further, a fraud or misrepresentation which did not affect the consent to a contract of the party on whom such fraud was practised, or to whom the misrepresentation was made will not render a contract voidable.

Remedies for fraud 

In case of a silent fraud, the plaintiff has the following two remedies:

  1. The plaintiff can rescind, that is, cancel the contract and obtain compensation for the losses he has suffered.
  2. Affirm the contract and sue the defendant to receive damages. (for example, when the value of the asset has decreased)

Rescission of the Contract

In case of a contract affected by fraud, the aggrieved party can rescind the contract. Section 19 of the Act states that when an assent to an agreement is obtained by fraud, the agreement is voidable at the option of the party whose assent was so obtained. This provision further states that the party to the contract, whose assent was obtained by fraud, can, if they think appropriate, plead that the contract should be performed and that they should be put in the position in which they would have been if the representation made was true.

Section 62  of the Indian Contract Act, 1872 sets out that if the parties to the contract agree to rescind it, then the original contract may not be performed. Section 64 provides that when a person at whose decision the contract is voidable rescinds it, the other party is not required to perform any promise in the contract in which he is the promisor. If the party rescinding the contract received any benefit under it then they shall restore the benefit from the person from whom they received it.

In Jibrail Mian And Anr. vs. Lalu Turi And Ors. (2004), it was ruled that when a sale deed is ratified by fraud and the contract must be performed as a whole, there will be no rescission of a portion of the deed, unless that part is separable from the remainder of the contract. In such a situation the person entitled to rescind a contract cannot rescind a part only.

Damages

“Damages” denotes compensation in money for the loss incurred by the injured party. The injured party must prove their loss in order to receive damages. When a contract is induced by fraud, the aggrieved party can claim rescission or damages or both.  A person who is a victim of fraud can file a suit for damages. 

In Dambarudhar Behera vs. State of Orissa And Ors. (1980), the plaintiff rescinded the contract due to misrepresentation of facts by the other party. The plaintiff claimed damages as the expenditure occurred in the formulation of the contract and the loss of earnings till the time the plaintiff got to know about the misrepresentation. The Court awarded damages to him and held that the damages given for fraudulent misrepresentation should not surpass the losses which would have occurred had the facts not been misrepresented. 

In Smith New Court Securities Ltd vs. Scrimgeour Vickers (Asset Management) Ltd (1996), Lord Browne-Wilkinson formulated certain principles to assess adequate damages for fraudulent misrepresentation: 

  1. The defendant is bound to make amends for all the damage directly flowing from the transaction or the contract. 
  2. The defendant must make amends for all the foreseeable damages caused emanating from the contract or by the transactional.
  3. The plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction.
  4. As a general rule, the benefits received by the plaintiff would include the market value of the property acquired at the date of the transaction. But this rule is not to be inflexibly applied when applying the rule would obstruct the plaintiff from recovering compensation for the damage he suffered.  
  5. The plaintiff is entitled to recover consequential losses caused by the transaction or the contract. 

Difference between fraud and misrepresentation

Misrepresentation and fraud have some elements in common. For example, both make the contract voidable and there is false representation in both. Damages for loss incurred as a consequence of innocent misrepresentation are determined on the same principles as in case of fraud. However, there are noteworthy points of differences between misrepresentation and fraud which are enumerated in the table below:- 

             Fraud     Misrepresentation

Meaning		Fraud is a deceptive act intentionally committed by one party in order to induce the other party to enter into a contract.Misrepresentation is an incorrect statement made innocently by one party which induces the other party to enter into a contract.

Intention
Fraud is intentional wrongdoing.		Misrepresentation can be committed without any guilty intention.

Cause of action		Fraud, besides making the contract voidable, is also a cause of action under the law of torts.Misrepresentation is not a tort, but rather a cause of action for damages under the law of contracts.

Belief		In fraud, the person making the suggestion does not believe in its truth.In misrepresentation, the person making the statement believes that it is true.

Conclusion

To conclude we can say that, fraud under contract law can be defined as an act committed by a party with the purpose of deceiving another party to induce them to enter into a contract. The false statement in fraud must be regarding a material fact which is significant to the contract and which is likely to impact the decision of the party to enter into a contract. However, only silence as to some material facts affecting the decision of an individual to enter into the contract would not amount to fraud. But if their silence can be treated as speech or the individual has a duty to inform the other party of the facts, silence would amount to fraud. A contract which is entered into by fraudulent means is voidable at the option of the party affected by such fraud.

Fraud under Indian Contract Law evolved from the Common law concept of fraudulent misrepresentation. The definition of fraud under Section 17 of the Indian Contract Act, 1872 lists a category of acts which if committed with the objective inducing a party to enter into a contract shall amount to fraud. While the scheme of the provision is precise and helps in identifying the fraudulent acts which may vitiate the consent in a contract, the scope of the provision should be even broader, so that all cases of deliberate misrepresentation can be identified. The specific circumstances where there is a “duty to speak” should be expressly mentioned in the provision. This might help resolve issues of ambiguity as to when there is a “duty to speak”  in relation to a contract. 

Frequently asked questions (FAQ)

What are some of the other statutes besides the Indian Contract Act, 1872 under which fraud is punishable ?

Besides the Indian Contract Act, 1872, the Companies Act, 2013, the Bharatiya Nyaya Sanhita, 2023 and the Transfer of Property Act, 1882 also penalise fraud.

What is misrepresentation ?

Misrepresentation denotes misstatement of a material fact relating to the contract. According to Section 18 of the Indian Contract Act, 1872, Misrepresentation consists of positive assertion of unwarranted statements, or a breach of duty without any intention to deceive, or unintentionally inducing mistake about the subject-matter of the contract.  

When duty to speak arises ?

The duty to speak arises when one party places their trust and confidence on the other party. In relation to a contract such duty arises, when one party lacks the resources to find out the truth and must rely on the information provided by the other.

References

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