Fraud : Indian Contract Act

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Fraud : Indian Contract Act

Fraud Indian Contract Act


When a party to a contract makes a misrepresentation knowing that it is false, with an intent to deceive, or not caring for its truth or falsehood, the misrepresentation is said to be fraudulent.

Section 17 states that —

`Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

(1) the suggestion., as a fact, of that which is not true by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declared to be fraudulent.


Explanation

Mere silence as to facts likely to affect the willingness of a party to enter into a contract is not fraud., unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

Illustrations

(i) A. sells by auction to B, a horse which A knows to be unsound.. A. says nothing to B about the horse’s unsoundness. This is not fraud in A.

(ii) B is A’s daughter and has just come of age. Here the relation between the parties would make it A’s duty to tell B if the horse is unsound.


Essential elements of fraud

An assertion or representation or active concealment by a person or his agent:

(a) Such assertion or representation or active concealment must relate to a fact.

(b) Such assertion or representation or concealment should have been made with knowledge of its untruth, or recklessly or carelessly whether it be true or false, and with intent to deceive.

(c) It should have been made with a view to inducing the other party to enter into a contract.

(d) The other party must be thereby damnified.

False representation

A intending to deceive B, falsely represents that 500 mounds of Indigo are made annually at A’s factory and thereby induces B to buy the factory. The contract is voidable at the option of B.

Active concealment

If a person intending to sell certain wooden furniture takes the trouble of covering the several holes, and also gives a thick coat of paint with a view to prevent their detection by the prospective buyers’ the seller will be guilty of fraud.

In the case of a contract vitiated by fraud it is essential that the party aggrieved must have acted upon the representation, and thereby been deceived and damnified..

It is a common saying that there is no fraud without damage. Unless the party aggrieved has suffered damage or injury no action will lie; the damage may be actual temporal injury, i.e., loss of money, or money’s worth or some tangible detriment capable of being ascertained all assessed.

Disclosure of partial facts if part of the facts are only revealed and the concealed facts so modify the part revealed so as to render it by itself substantially false, then such non-disclosure may amount to fraud.


According to explanation to section 17 of the Act :

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. This is clearly illustrated with certain illustrations appended to the section referred to earlier.

Thus, “there is no general duty to disclose facts which are or might be equally within the means of knowledge of both the parties.”

But if the circumstances are such that it is the duty of the person keeping silence to speak, silence may be equivalent to speech and may amount to fraud.

For example

If C says to D “if you do not contradict it,” I shall assume that the house is without any encumbrances. The house is in fact under mortgage but D says nothing. Here, silence is equivalent to fraud.


Fraud as per Indian Contract Act



The Indian Contract Act Notes