This article is written by Jaya Jha of the Vivekananda Institute of Professional Studies, Delhi. This article deals with a comparative analysis of the difference between fraud and misrepresentation and their various components.

It has been published by Rachit Garg.

Introduction 

In today’s time where a contract has become a vital part of any business, misrepresentation and fraud is significant in corporate transactions where significant communication happens frequently. Fraud and misrepresentations of the value and/or risk associated with an agreement can result in significant financial losses for both individuals and corporations while raising the risk of joint ventures. As a result, misrepresentation and fraud in contract law are essential for maintaining equity and lowering the risk associated with contracts between people and enterprises. The distinction between fraud and misrepresentation is a vital question that comes to one’s mind while understanding this concept; the former refers to the intentional concealment of a material fact, while the latter refers to a genuine representation that is false. In contrast to the former, which is a factual statement made by one party with the intent that it be believed to be real, the latter is an incorrect statement made by one party that induces the other party to enter into the contract. In the case of Dularia Devi v. Janardhan Singh (1990), while making a distinction between the two, the Court held that there is a clear distinction between an agreement obtained by fraud and misrepresentation as to the character of the document. While the former is a void transaction, the latter is only voidable. 

What is fraud 

Section 17 of the Indian Contract Act, of 1872, defines fraud. Fraud means dishonestly making a false (untrue or misleading) representation to gain or to cause loss. The term ‘fraud’ includes all activity done by a person to deceive another person. In the case of Bhaurao Dagdu Paralkar v. State of Maharashtra (2005), the Supreme Court, while observing the detailed ingredients relating to  fraud, held that fraud is defined as having the aim to deceive; it is irrelevant whether this intention originates from an expectation of personal gain for one party or from ill feelings toward another. Fraud has two components: deceit and harm to the person who was deceived.

According to Section 17, fraud is when one party convinces another party to agree on the following points:

1. Pretending that a false fact is true. (Suggestio falsi)

2. Actively hiding information even though you are fully aware of it. (Suppresio veri)

3. Making a promise without any intention of performing it.

4. Engaging in any other similar activity with the purpose of defrauding.

5. Any such act or omission that the law declares to be fraudulent.

Pretending that a false fact is true (Suggestio falsi)

Section 17(1) says that fraud requires the statement to be made with knowledge of its dishonesty or without belief in its veracity by the individual concerned. However, when a material assertion turns out to be untrue, even a representor’s willful ignorance of its truth or falsity is considered equivalent to knowing it to be false. This rule also applies in cases where the representor had reason to believe his statement might be inaccurate but chose not to confirm it.

In the case of The Division Controller v Kashinath Jairam Rahate (1997), an employee of Maharashtra State Road Transport Corporation while joining the service declares that his date of birth is 22-5-1929 and he did not give any proof to prove this fact.The Corporation on its own found from his school leaving certificate that his date of birth is 15-2-1923 and after that Corporation superannuated him from service.The employee claimed before the Labour Court that he was entitled to gratuity in the superannuated period.The Court held that he was not entitled to claim gratuity for the said period on account of his dishonest act of suggestio falsi.

Active concealment 

Section 17(2) talks about active concealment. When one party actively conceals vital contract-related information despite having a duty to disclose it, this is known as active concealment. For example, ‘A’ is entitled to succeed to B’s property after B’s death. ‘C’ got this information before ‘A’ and thus made an effort so that information should not reach ‘A’ and thus induced ‘A’ to sell him his interest in the estate. This is an active concealment of the facts, and this sale is voidable at option ‘A’. Unless it is additionally determined that the consent was obtained through the use of some fraud, the simple omission of some immaterial facts would not by itself give rise to a right to revocation. In contrast to simple “passive concealing,” “active concealment” is different. Passive concealment is simply remaining silent about relevant facts. Fraud is the active hiding of a material truth; mere silence, except in a few instances, does not constitute fraud. Section 17(2) of the Act makes it very evident that, even though  silence by itself does not constitute fraud, it may do so in circumstances where one person has a duty to speak up or where such silence is equal to speech. 

In the case of P.L. Raju v. Dr. Nandan Singh (2005), a person whose land was already acquired under the Land Acquisition Act of 1894 sold his land to the other party without disclosing the fact. The Court held that since the buyer was unaware of the pending litigation over that property, the buyer is entitled to get the principal amount with 6% interest from the seller.

When silence amounts to fraud

Mere silence is not fraud unless there is a requirement to speak or if it is equivalent to expression. This law has two rules. First, even though the rest of the statement is correct, leaving out some of the known facts could be confusing. Second, a requirement to reveal particular faults in marketed products or the like may be imposed by commercial use. Unless the defendant is required to talk and conceal the details of a certain transaction or trade, mere silence or a failure to disclose facts would not amount to fraud. Therefore, where the circumstances of the case are such that the individual has a duty to speak and notify the other party of the facts, but they do not, or the party’s quiet is comparable to expression, that individual’s silence alone constitutes fraud. The contract’s other party is deceived, and as a result, it suffers losses.

In the case of Shri Krishan v. Kurushetra University (1975), ‘S’, a candidate for the LLB Part I Examination who lacked the required number of attendances, failed to disclose that information on the form. The head of the law department and university officials failed to conduct an adequate investigation to ascertain the facts. The Supreme Court in this case held that the candidate did not commit any fraud; rather, he only remained silent about his presence, which the authorities might have learned if due diligence had been taken. The candidate’s candidacy could not have been withdrawn by the institution for that reason.

Silence will amount to fraud in the following cases:

Duty to Speak  (contacts uberrima fides)

When one contracting party responds to and believes in the other, a duty to speak arises. Being silent about facts isn’t necessarily deception. Facts that are or could be equally within the means of knowledge of both parties are not generally required to be disclosed.

For example- A is suffering from severe back pain, and he went to the doctor, who detected that ‘A’ is suffering from a kidney stone but chose not to disclose it. After a few months, when it became severe, he went to another doctor, and the doctor diagnosed him with kidney stones. So, in this case, the previous doctor would be held liable for fraud as he had a duty to disclose the ailment to ‘A’.

In the case of Rajesh Kumar Chaudhary v United India Insurance (2005), the Court held that the party omitted the fact that they had submitted a similar application for insurance for their property and that the same insurance company had turned it down. This failure to disclose was viewed as the suppression of an important fact.

In the case of P.C. Chako v. Chairman LIC of India (2007), the insured in this case had a thyroid operation. He underwent a major operation four years before he took out the insurance policy. When he applied for the insurance policy, he omitted to provide this information. He purchased the policy  on July 6th, 1987, and passed away on February 21st, 1987, six months later. According to the Court, the insured did not reveal all important details of the contract, which amounted to fraud.

Where silence is misleading 

Sometimes, being silent is equivalent to speaking. A person is nonetheless guilty of fraud if they remain silent despite knowing their silence would be misinterpreted. For example, if ‘X’ sells his property to ‘Z’ and quotes the value of that property, which is very low for that property, the buyer (Z) knows that the value of the property is higher than quoted but chooses to remain silent to cheat him. The buyer can be liable for fraud.

Change of circumstances

Sometimes a representation is accurate when it is made. Still, it may, due to a change in circumstances, turn out to be false when it is relied upon by the opposing party. In these situations, the person who provided the contract has a duty to discuss the difference in circumstances. In T.S. Rajagopala Iyer v. The South Indian Rubber Works (1942), a prospectus of the company listing its directors was released for the allocation. However, some directors had already retired, and the directorate had changed before the allocation, but no ratification was done in the prospectus. The Madras High Court ruled that a recipient of an allocation could avoid it if the change in directorate was not communicated.

Truth is not revealed fully

If someone freely exposes information even when they are under no obligation to do so, they may still be guilty of fraud by using methods of non-disclosure where they are disclosing something but then stopping halfway. Nevertheless, if he speaks, he is obligated to tell the complete truth. For example, ‘X’ has diabetes and is also taking high-dose medicines without informing his doctor. So, in this case, X is not telling the truth entirely, and it will amount to fraud.

In R.C. Thakkar v. The Bombay Housing Board (1972), incorrect costs were provided in the tender. The contractor reduced the expenses since he thought the estimate made in the tender was accurate.The Court observed  that the costs provided in the tender are misleading. 

The promise made without the intention of performing it

Section 17(3) mentions fraud as occurring when a promise is made with no intention of keeping it. Any future conduct or representation is not considered for this purpose; instead, it must be demonstrated that the promisor had no intention of keeping the promise when it was taken into account for this purpose. For instance, ‘A’ purchases clothes from ‘B’ without the intention of paying the amount. In the case of M. Sivaram v. State of Andhra Pradesh(2006)  Court held that the intention to deceive should be present at the time when the inducement is done.

In the case of DDA v. Skipper Construction Co. (2005), the builder entered into a large number of bookings, nearly three times the number of available units of accommodation, to sell and collect money from the buyers. The Supreme Court held it as a fraud because the builder should have known that he would not be able to perform the contract with all of the buyers, and thus he made the promise without the intention of performing it.

Any other acts fitted to deceive 

Section 17(4) of the Act talks about it. Since there are numerous varieties of fraud, it is nearly impossible to attempt to give a precise and exhaustive definition of fraud to cater to all the contingencies because it is highly likely that many loopholes may become available to escape liability. This clause was written as a tool to help the judiciary administer effective and true justice because human innovation and creativity know no limitations. This provision may cover all behaviours that could be utilised to deceive or defraud someone unjustly, resulting in a wrongful loss for the victim or wrongful gain for the cheater.The intent of the person cheating must be to deceive the other person.

In the case of Ramesh Kumar v. Furu Ram (2011), the Supreme Court held that fraud can be of different forms and hues. It is difficult to define it with precision, as the shape of each fraud depends upon the fertile imagination and cleverness of those who conceive and perpetrates the fraud. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of a position of confidence.

Further, in the case of Santosh v. Jagat Ram (2010), the Supreme Court observed that whether any particular act or omission constitutes fraud or not will depend on the facts of each case and that there cannot be any straight jacket formula for the same.

Any such act or omission that which law declares to be fraudulent

Section 17(5) includes the category of cases where the law itself specifically declares an act or omission to be fraudulent. For instance, The Insolvency and Bankruptcy Code, of 2016  declares certain kinds of transfers to be fraudulent, and under Section 55 of the Transfer of Property Act,1882, a seller is bound to disclose to the buyer all the material latent defects in the immovable property, not doing so will amount to fraud.

What is misrepresentation 

Section 18 of the Act defines misrepresentation as neglecting to disclose a material fact without the other party’s knowledge or making an innocently false statement. In the case of Buddhist Mission Dental College and Hospital v. Bhupesh Khurana (2009), a dental college that was neither affiliated with the university concerned nor with the Dental Council of India (DCI) stated in its advertisement that it was affiliated with the university or DCI. The Supreme Court in this case held that it was a total misrepresentation on the part of the college concerned and that it was tantamount to an unfair trade practice under the Competition Act, 2002, and the Monopolies and Restrictive Trade Practises Act, 1969 (no longer in force). According to Section 18 of the Indian Contract Act of 1872, misrepresentation includes the following elements:

Unwarranted statement

When a person unmistakably claims that reality is true, but his facts don’t support it at this time. Despite the fact that he believes it to be true, he does not guarantee it; this is a misrepresentation. By using the information, it is claimed that a declaration is necessary. When a representation is recognised as a settlement provision, if it turns out to be false, the adverse party might not be the one to avoid. However, they can add, and claim damages for breach of the agreement. For example, ‘A’ purchased land for the construction of a duplex and represented that he saw no difficulty in taking permission to construct the duplex or use the land, but permission was refused unless sewage costing some 30000 rupees was provided. Here, buyers are allowed the sale as it was a misrepresentation on the part of ‘A’.

Breach of duty 

A misrepresentation is any act of negligence that benefits the person who commits it by persuading the other party to act contrary to his prejudice. When someone doesn’t follow through on their responsibility to act prudently in whatever way, that person has violated their duty of care. Any breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is a misrepresentation.

In the case of Khandu Charan Polley v. Chanchala Bhuniya (2003), the plaintiff did not read the contents of a deed and signed it as he was given the impression by the defendant that it contained formal matters already settled between the two, but the deed contained a release in favour of the defendants. The Court held that the defendant was under no obligation,  neither morally nor legally, to communicate the contents of the deed. But the plaintiff placed confidence in the defendant, and it then became his duty to state full facts without concealment, which is essential to the knowledge of the contents of the contract. 

Inducing mistakes about subject matter

Section 18(3) says that misrepresentation also occurs when a party to a settlement unintentionally prompts another party to make a mistake regarding the substance of the element that is the focus of the settlement. Making a factual error entails inducing a mistake about the subject. This occurs when both parties misunderstand one another and are left at a crossroads. Such wrongdoing or error may have been caused by a misunderstanding, ignorance, omission, etc. These mistakes can be bilateral or unilateral.

1. Bilateral Mistake

Section 20 talks about the bilateral mistake. Bilateral mistakes occur when both parties to a contract are in violation of a factual requirement outlined in the contract. According to the notion of consent, neither party has given their permission or consent in this situation. The agreement is null and void because there is no consent at all. However, for an error of fact to render a contract void, it must pertain to a material truth that is significant to the contract. Therefore, a contract would be void if there was a misunderstanding regarding the subject matter’s existence or its title, quality, price, etc. However, if the error is of a minor nature, the contract will still be in effect and not null and void.

For eg A consents to sell his goat to B. However, the goat had already passed away when the deal was reached. Both X and B were unaware of this. As a result, there is no contract at all, and the agreement is not enforceable because of a factual error.

2. Unilateral Mistake

According to Section 22 of the Act, the contract is not voidable or voidable only because one party was in error. Therefore, even if just one party made a factual error, the agreement is still enforceable.

For example, ‘X’ and ‘Z’ entered into a contract in which only ‘Z’ was in the misbelief that ‘X’ would sell a certain product, which is in the transaction. Then, the contract is not voidable for X, and the contract will be a valid contract.

Types of misrepresentation

Misrepresentation can be of the following types:

Fraudulent misrepresentation 

When a false representation is made and the person making it, let’s say A, knew it was untrue or was reckless as to whether it was true or not true, it will be considered a fraudulent misrepresentation because there was no accurate confidence in its honesty. A statement cannot be a fraudulent misrepresentation if A genuinely believes it to be true; ignorance in making a false statement will not constitute fraud.

In the case of Bimla Bai v. Shankarlal (1958), a person represents another person as his son, then holds him as his legitimate natural or adopted son and makes him marry a girl. The Court held that this representation is a fraudulent misrepresentation and marriage is void.

Negligent misrepresentation

A statement made by one contracting party to another negligently or with limited reasons for believing it to be true is known as negligent misrepresentation. A party that is trying to induce another party to enter into a contract has a duty to ensure that reasonable care is taken as regards the accuracy of any representations of fact that may lead to the other party entering the contract. Negligent misrepresentation can also occur in some cases when a party makes a careless statement of fact or does not have sufficient reason for believing in that statement should it may be in the form of unwarranted positive reservation which in reality is not true but the party making it believes it to be true.

Innocent misrepresentation

A misrepresentation made completely without fault can be described as an innocent misrepresentation. In innocent misrepresentation, a misrepresentation that  has induced a party into a contract is good, but the person making the misrepresentation had reasonable grounds for believing it was true at the time the representation was made.

In the case of  Ram Chandra Singh v. Savitri Devi (2003), the Supreme Court observed that it is also well-established that misrepresentation itself amounts to fraud. Indeed, innocent misrepresentation may also give reason to claim relief from fraud.

Key differences between fraud and misrepresentation

Illustrations

Fraud

1. ‘A’ sells his horse to ‘B’ by auction, which ‘A’ knows to be unsound, ‘A’ tells ‘B’ nothing about the horse’s unsoundness. This is a fraud on the part of ‘A’.
2. A purchased goods of Rs. 5000 from shopkeeper B, with the intent of not paying the money to B, this type of action amounts to fraud.

Misrepresentation 

1. X asks Z to purchase his car which is in a good condition, B purchased the car believing  in good faith that the car is in a good condition but after a few days, the car did not function properly and B had to suffer a loss to repair the car. So the act amounts to misrepresentation as A believes that the car works properly but this is not so.

Essentials

Fraud 

Essentials of fraud are-

1. A false representation of the facts must exist.

In the case of Derry v Peek (1889), it is observed that fraud is proven when it is shown that a false representation has been made;

• Knowingly
• Without belief in its truth
• Careless whether it is true or false.

A person is not guilty of fraud if they think what they are saying is truthful. In the case of Sukh Sagar Medical College & Hospital v State of Madhya Pradesh (2020), it was held that actual fraud is concealment or false representation through an intentional or reckless statement or conduct that injures another who relies on it in acting.

2. The false statement must have been made by the contracting party, with his knowledge, or through his agent. The contract is unaffected if a stranger makes a statement. Only when a party to a contract or his agent commits fraud is a contract voidable.
3. It must have been the intention of the representation to trick the other party. In the case of the State of A.P v T.Suryachand Rao (2005), the Court observed that the element of deceit and injury or false representation and suppression of material fact or document amounts to fraud.
4. The other party must have been persuaded to act on the representation. Fraud is not an attempt to deceive that is unsuccessful. 
5. The other party’s desire to engage in a contract must have been seriously impacted by the fraud.
6. The misinformed party must have experienced some sort of loss. The general rule of law is that there cannot be fraud without harm. As a result, the party that was duped must lose. The harm could consist of a monetary loss or loss in value. Fraud does not give rise to a deception action in the absence of any loss.

Misrepresentation 

Essentials of misrepresentation are:

1. The misrepresentation must be of material facts. The requirement that the false statement is based on actual, material facts is a crucial and necessary component of misrepresentation. A simple opinion remark is not a statement of fact.
2. The misrepresentation must be untrue, but the person making it must honestly believe that it is true. The factual statement that amounts to the misrepresentation must also be false. However, the statement should be made from a perspective of truth.
3. The false statements must persuade the other party to enter into a contract. The belief that the representation is accurate should be there.
4. One party had to make the false statement in order for the person being deceived into receiving it. The party that is being misled by the false statement or misrepresentation must have been made by the person making it. It is not a misrepresentation and the contract cannot be voided at the misled party’s discretion if it is not addressed to that party.
5. A change in circumstances could constitute misrepresentation. Sometimes a factual statement is made, and before the contract is finished, the situation changes. In these situations, the opposite party must be informed of any changes in circumstances that have an impact on the facts that have already been stated. The contract can be void on the grounds of misrepresentation if the change is not disclosed to the other party.

Representation 

Fraud 

A representation is a past or present declaration of the fact that is different from an opinion statement, yet in some cases, an opinion statement may be regarded as a statement of fact. In order for the representative to be able to prevent the agreement, the fraudulent misrepresentation must be substantial, meaning that it must have had a significant impact on a reasonable person’s decision about whether to enter into the agreement or not. In the case of Central National Bank Ltd. v United Industrial Bank (1953), the Supreme Court observed that consent induced by false representation may not be free, but it can nevertheless be real and ordinarily the effect of fraud is to render a transaction voidable only and not void. 

In the case of A.C. Ananthaswamy v. Boraiah (2004), the Supreme Court held that it must be proved that the representation was made to the knowledge of the party making such representation or that the party could have no  reasonable belief that it was true. The level of proof required in such a case is extremely high. An ambiguous statement cannot per se make the representative guilty of fraud.

Misrepresentation 

A contract is initiated and induced by representation. It is the material on which a contracting party bases its decision to carry out the contract. A “representation” is a statement made to the other party to the contract, either explicitly or implicitly, before or during the contracting process. It is entered in light of an earlier or current fact. A seller of certain goods, for instance, can claim that no notice of patent infringement has been received.

A representation cannot be a term of a contract at the outset, and a claim for damages resulting from misrepresentation is typically barred. Instead, a claim that a false statement induced a contract could be made in a fraud case, either to void the agreement or to recover damages.

In the case of Meera Sahni v. Lt.Governor of Delhi (2008), the Supreme Court held that the transfer of land for which acquisition proceedings have been initiated and a false representation had been made will be invalid because the transfer is based on the false representation of material facts and, in fact, is a misrepresentation.

Remedies

Fraud 

In case of fraud, the person has the following remedies:

1. He can cancel or revoke the agreement and file a claim for damages against the defendant and get compensation. 

In the case of Dambarudhar Behera vs State Of Orissa(1980) due to the opposing party’s misrepresentation of the facts, the plaintiff revoked the contract. The plaintiff sought damages for the costs incurred in the contract’s drafting as well as for lost wages up until the point at which the plaintiff discovered the misrepresentation. The Court granted him damages and ruled that the damages given for the fraudulent misrepresentation should not surpass the losses which would have occurred had the facts not been misrepresented.

2. He can sue the defendant and bring an action against the defendant for fraud for the damages (where the value of the asset has decreased). The punishment for fraud is a non-compoundable offence as it includes both fines and imprisonment. Section 447 of the Companies Act, 2013 also provides the punishment for fraud.
3. Section 19 of the Indian Contract Act  mentions that consent obtained by the fraud is voidable at the option of the deceived person. Further exception of the Section says that if the consent of the party involved in the contract is obtained by fraud or misrepresentation, then such contract is not voidable if the party whose consent is obtained can find out about the truth with ordinary diligence.

Misrepresentation

1. Rescind: To rescind is to revoke. The party who feels wronged has the right to claim contract termination and/or monetary damages at any time. Rescission is the legal term for the dissolution of a contract between two parties. The process of rescinding a transaction. This is intended to put the parties back in the same situation they were in before entering into a contract (the status quo ante).

In the case of Ganga Retreats and Towers v. State of Rajasthan (2003), the Supreme Court held that in the case of misrepresentation, the party can rescind the contract, seek restitution, or affirm the contract without prejudice to their right to seek damages by way of restitution.

2. Demand the performance: The party who has been wronged may claim against the first party to obtain the object in a way that was not expressly provided for in the contract. Section 19 of the Act makes the contract voidable at the option of the party whose consent was not free.

Key judicial pronouncements 

Fraud 

S.P Chengalvaraya Naidu v. Jagannath (1993)

In the case of S.P. Chengalvaraya Naidu v. Jagannath (1993) the Apex Court held that fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception to gain from others’ losses.

 Gopal Bagda Brahmin v. M/S Omega Infrastructure Limited (2018) 

In the case of Gopal Bagda Brahmin v M/S Omega Infrastructure Limited (2018), a cheque in exchange for the price being paid was issued to the plaintiff got dishonoured, and the defendant had reason to believe that the account did not have sufficient funds, which would eventually make the cheque dishonoured, still, they did not disclose this fact to the plaintiff. The Court held that the defendant issued the cheque with the intention of not performing it and deceived the other party.

 Vidya Drolia v. Durga Trading Corporation (2021)

In the case of  Vidya Drolia v. Durga Trading Corporation (2021), the Supreme Court held that Section 17 of the Contract Act would apply if the contract itself was obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud and post-contract fraud and cheating. The leather would fall outside Section 17 of the Contract Act, and therefore the remedy for damages would be available, not the remedy for treating the contract itself as void.

Misrepresentation

Vaughn v. Menlove (1837)

In the case of Vaughn v. Menlove (1837), the defendant was informed that there was a significant chance that his haystacks could catch fire and damage the plaintiff’s dwelling. He ignored them and continued to position the hay. Plaintiff filed a lawsuit accusing the defendant of being negligent after the hay caught fire and damaged his cottages.

The concept that a defendant’s exacting sensibility or shortcomings should be taken into consideration when assessing negligence claims are rejected in this case. Instead, one should simply consider if they have performed as a prudently cautious person would in a similar circumstance.

Raj Kumar Soni v. State of U.P (2007)

In the case of Raj Kumar Soni v. State of U.P. (2007) suppression of important facts was ruled to be an assault on due process, and it was decided that the party responsible for failing to present the truth should not receive any benefits because they would not be required to approach the court with clean hands.

Sh. Ranbir Singh v Sh.Narain Sharma (2014) 

In the case of Sh. Ranbir Singh v. Sh. Narain Sharma (2014), the Court held that while entering into the contract, free consent must be there, and if consent is obtained under misinterpretation, the contract will be voidable at the option of the party whose consent was taken under the misrepresentation.

National Insurance Co. Ltd. Thr Asstt Manager v. Guddi Bai (2022)

In the case of National Insurance Co. Ltd., Thr Asstt Manager v. Guddi Bai (2022), the Court observed that the party to a contract whose consent is obtained by misrepresentation can demand that the contract be carried out and that he or she be placed in the same situation as if the representations made had been accurate.

Tabular representation of  differences between fraud and misrepresentation

Criteria for comparison	Fraud	Misrepresentation
Meaning	Fraud is defined as fraudulent conduct done knowingly by one party to persuade the other party to enter into the contract.	Misrepresentation is the act of making an innocently false statement in an effort to get another party to sign a contract.
Defined in Section	Section 2(17) of the Indian Contract Act, 1872	Section 2(18) of the Indian Contract Act, 1872
Consent	The consent of the party is obtained by deceiving the  other parties	The consent is obtained through the misrepresentation of the party by other parties.
Intention to deceive the party	Yes	No
Veracity of Truth	When a representation is made fraudulently, the party making it is aware that it is untrue.	In misrepresentation, the party making the representation really believes the assertion he is making, even though it later proves to be wrong.
Legal Action	Fraud is punishable under the Indian Penal Code(IPC) (sections 420–424)	It is not bound to be punishable by law.
Claim	Party has the right to claim for the damages	Party does not have the right to sue the other party
Voidable	It is voidable even if the truth is found with normal diligence.	If the truth can be learned by exercising reasonable diligence, the contract is not voidable.
Consequences	The party that was deceived can cancel the contract.	A party who is mistreated can cancel the contract.

Conclusion 

The concept of “fraud” as defined in Section 17 of the Contract Act, is very broad. It includes any suggestion, as a fact, of that which is not true, by a person who does or does not believe it to be true. It may be contrasted with Section 18(1) of the Contract Act, which, inter alia, defines “misrepresentation.” Section 18 provides that it is misrepresentation if a person makes a positive assertion that is not true in a manner that is not warranted by the information that he has. This is despite the fact that he may believe it to be true. In other words, in fraud, the person who makes an untrue suggestion does not believe it to be true. He knows it to be false, yet he makes a suggestion of the fact as if it were true. In a misrepresentation, on the other hand, the person making the misrepresentation believes it to be true. But the law declares it to be misrepresentation on the basis of the information he had and what he believed to be true, which was not true. Therefore, the representation made by him becomes a misrepresentation as it is a statement that is found to be untrue. Fraud is committed if a person actively conceals a fact, whether they know about the fact or believe in its existence. The concealment must be active. It is here that mere silence has been explained in the Exception, which would affect the decision of a person who enters into a contract as not being fraud unless the circumstances are such that it becomes his duty to speak. His silence itself may amount to speech. A person may make a promise without having any intention to keep it. It is fraud. The law further declares that any other act fit to deceive is fraud. So also, any act or omission that the law declares to be fraudulent, amounts to fraud. However, running as a golden trend and as a requirement of law through the various limbs of Section 17 of the Contract Act is the element of deceit. A person who stands accused of fraud, be it in a civil or criminal action, must entertain an intention to commit deception. Deception can take various forms, and it is a matter to be judged on the facts of each case. 

References 

1. https://www.mondaq.com/uk/contracts-and-commercial-law/686848/the-basics-negotiating-a-contract-misrepresentation-or-just-exaggeration
2. https://legislative.gov.in/sites/default/files/A1872-09.pdf
3. https://www.csun.edu/sites/default/files/blawfraud.pdf
4. http://www.penacclaims.com/wp-content/uploads/2020/06/Aliasgar-Challawala.pdf
5. https://heinonline.org/HOL/Page?handle=hein.journals/scal26&div=20&g_sent=1&casa_token=&collection=sccjournals

---

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.