Fraud (Section 17) of Indian Contract Act 1872 PDF

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Section 17 of Indian Contract Act 1872 (Fraud)...

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Fraud - Section 17 of Indian Contract Act Definition of Fraud (Section - 17): Fraud implies and involves any of the following acts committed by a contracting party or his connivance or his agent with the intention of deceiving or inciting another party or his agent to enter into the agreement. The suggestion, as a fact, of that which is not true by one who does not believe it to be true. The active concealment of a fact by one having knowledge or belief of the fact. A promise made without any intention of performing it. Any other act fitted to deceive. Any such act or omission as the law specially declares to be fraudulent. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstance of the case is such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, in itself is, equivalent to speech. Illustration – 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. Section 17 describes fraud and lists the acts that amount to fraud, which are a false claim, active concealment, promise without the intention of carrying it out, any other deceptive act, or any act declared fraudulent. To constitute fraud, the contracting party, or any other individual with his connivance, or his agent, or to induce him to enter into the agreement, should have performed such acts. The parties have no duty to speak about facts likely to affect the consent of the other party to the contract, and mere silence does not amount to fraud unless the circumstance of the case shows that there is a duty to speak or silence equivalent to speech. Fraud and Misrepresentation: The main difference between fraud and misrepresentation is that in the first case the person making the suggestion does not believe it is true and in the other case he believes it is true, although in both cases it is a misrepresentation of fact that misleads the promisee. This was held in Rattan Lal Ahluwalia v Jai Janider Parshad. Under common law, fraud will not only render the contract voidable at the option of the party whose consent is so obtained but will also give rise to an action for damages in respect of deceit. If a decree is found to have been obtained by fraud, an application moved, even belatedly, would be maintainable. The court has inherent jurisdiction to grant relief on such an application and even principles or res judicata would not apply. Fraud is a conduct either by letter or words, which includes the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter. Indeed, innocent misrepresentation may also give reason to claim relief against fraud Ingredients of Section 17: When analysed s 17(1) shows the following ingredients:  There should be a suggestion as to a fact;  The fact suggested should not be true;

 The suggestion should have been made by a person who does not believe it to be true;  The suggestion should be made with intent either to deceive or to induce the other party to enter into the contract. Representation: A representation is a statement of fact, past or present and is distinct from an opinion statement, although a statement of opinion may be considered as a statement of fact in certain circumstances. The fraudulent misrepresentation must be material in order to allow the representative to prevent the agreement, i.e. such that it would have affected a reasonable man in choosing whether to enter into the agreement or not. In Lillykutty v Scrutiny Committee, a false certificate was obtained in order to take unfair advantage. It was held that fraud vitiates every solemn act. Fraudulent acts are not encouraged by the courts. Any action by the authorities or by the people claiming a right/privilege under the Constitution of India which subverts the constitutional purpose must be treated as a fraud on the Constitution. False Assertion without Belief in its Truth: To prove a case of fraud, it must be proved that representations made were false to the knowledge of the party making them. The statement must be false in substance and in fact. Positive knowledge of falsehood is not a criterion. In order to constitute fraud, it is necessary that the statement was made by the person concerned with knowledge of its falsehood, or without belief in its truth. Even mere ignorance as to the truth or falsehood of material assertion, which, however, turns out to be untrue, is deemed equivalent to the knowledge of its untruth, as also where the person representing suspected that his statement might be inaccurate, or that he neglected to inquire into its accuracy. In Jewson & Sons Ltd v Arcos Ltd, giving a false impression and inducing a person to act upon it, was considered fraud, even if each fact taken by it would be literally true. Reckless Statements: Proof of absence of actual and honest belief is all that is necessary to satisfy the existence of fraud, whether the representation is made recklessly or deliberately; indifference or recklessness on the part of the person representing as to truth or falsity of the representation affords merely an instance of absence of such belief. 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. Ambiguous Statements: Where the person representing 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 person representing will be guilty of fraud if he intended the statement to be understood 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 s 19 is of no avail and the question whether the person alleging fraud had or had not the means of discovering the truth with ordinary

diligence, is immaterial. Active Concealment: Mere non-disclosure of some immaterial fact s would not per se five a right to rescission unless it is further found that the consent has been secured by practicing some deception. Where the seller sold property already sold by him to a third person, his conduct 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: Making a promise without the intention of performing it is fraud, though not so under the English law. To bring the case within this clause, it must be shown that the promisor had no intention of performing the promise at the time of making it, and any subsequent conduct or representation is not considered for this purpose. Silence as Fraud: Silence about fats 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 portion of the known facts may mislead the assertion of the remainder, although literally 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 a 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. Duty to Speak: There is no general duty to disclose facts that are or might be equally within the means of knowledge of both parties. In Bell v Lever Bros, 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 held 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, it could not be said to have been defrauded, even if a false statement has been made. Further, a contract cannot be merely on a trivial and inconsequential mis-statement or non-disclosure. In Janakiamma v Raveendra Menon, 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 on the ground of fraud of not disclosing the contents of the Will; and no fresh partition was ordered. Evidence and Burden of Proof: In a great majority of cases, fraud is not capable of being established 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 ay 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 restitution 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 obtained by fraud, is voidable under s 19. The party deceived has the option to affirm the contract and insist that he be put in the position in which he would have been if the representations were true, or he may rescind the contract to the extent it is not performed. Upon rescission, he is liable to restore the benefit received by him under s 64 and may recover damages. The measure of damages recoverable is essentially that applicable to the tort deceit, i.e., all the actual loss directly flowing from the transaction included by the fraud, including the heads of 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 under s 19. Damages for Fraud: Where a contract is induced by fraud, the representee is entitled to claim rescission, or damages or both. He would have a remedy by way of such suit, even if restitutio in integrum is not possible as in Indranath Banerjee v Rooke. In Firbank’s Executors v Humphreys, the damages for fraudulent misrepresentation, under the general rule, were arrived at by considering the difference in the position the plaintiff would have been in, had the representation been true and in the position he is actually in, in consequence of it’s being true. The principles applicable in asserting damages for fraudulent misrepresentation have been stated by Lord Browne - Wilkinson in Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd: The defendant is bound to make reparation for all the damage directly flowing from the transaction. Although such damage not has been foreseeable it must have been directly caused by the transaction. In assessing search damage, the plaintiff is entitled to recover by way of damages the full prize faced by him, but he must give credit for any benefits which he has received as a result of the transaction. As a general rule, the benefits received by him into the market value of the property acquired at the date of the transaction, but the general rule is not to be inflexible applied where to do so would prevent him from obtaining full compensation for the wrong suffered. The plaintiff is entitled to recover consequential losses caused by the transaction. The plaintiff must take all reasonable steps to mitigate the loss once he has discovered the fraud....