January 18, 2024

The fundamental component of contractual relationships in the nation of India is the Indian Contract Act, of 1872, which sets a legal structure for the development, fulfillment, as well as implementation of contracts. Fraud is an ever-present danger in the area of contracts, compromising the fundamental tenets that underlie business agreements.

definition of fraud in Indian contract act

Fraud is the term for a variety of acts taken by a party to a contract, their accomplice, or their agent in order to trick or persuade another party, or their agent, into signing an agreement.

As per fraud according to Indian contract act under Section 17, it is described as any act carried out to deceive or trick the other party, his agent, or to encourage him to enter into a contract by a party to a contract, with that party’s consent (willingness to allow), or by that party’s agents.

Among these are the following:

  • Presenting as factual something that is clearly untrue.
  • Deliberately concealing a fact from someone who knows or believes it to be true.
  • Making a commitment that you have no intention of keeping.
  • Carrying out any other act of deception.
  • Engaging in any behavior that the law expressly designates as fraudulent.

Merely remaining silent about information that could influence someone’s decision to sign a contract is not considered fraud, unless the situation demands that the person remaining silent have an obligation to address the matter or if his silence is itself speech.

For example: Even though A is aware that the horse is unsound, A nevertheless sells it to B at auction and keeps this information from B. In A, this is not fraud.

fraud under Indian contract act 1872: Essential Ingredients

The following list contains the necessary ingredients of fraud:

  • A factual suggestion must be made, 
  • The suggested fact must not be accurate, 
  • The idea must have come from someone who does not think the suggestion is true, and 
  • The suggestion must be made with the intention of misleading or coercing the other party into signing the contract.

Circumstances Constituting Fraud

False Claim without Trust in Its Accuracy:

  • It is necessary to demonstrate that the person making the claims knew they were untrue in order to establish fraud.
  • The claim has to be untrue both practically and substantively. Being positive about lying is not a requirement.
  • Fraud requires that the statement was made by the individual in question with knowledge of its falsity or without belief in its veracity.

Statement that is Reckless:

  • Whether the claim was made carelessly or on purpose, it is sufficient to demonstrate the absence of a real and honest belief in order to show fraud under the Indian Contract Act.
  • A lack of belief is shown by the person’s carelessness or indifference to the representation’s veracity or untruth.
  • Recklessly made statements would fall under the category of statements made without conviction.
  • Vendors who knowingly or carelessly misrepresent the ownership of a product cannot avoid being charged with false misrepresentation.

Statement that is Ambiguous:

  • When a representative makes a vague statement, the person to whom the statement is addressed must demonstrate that he interpreted it to mean that it was untrue.
  • If the representor honestly thinks the statement is accurate but the person depending on it perceives it differently, then the representor will be found guilty of fraud, not if he intended the statement to be interpreted in that manner.

Active Concealment:

  • When one party purposefully withholds important information about the contract from the other, even if they are required to reveal it, this is known as active concealment.
  • It is crucial to remember that silence is meant to be passive concealment in this instance.
  • According to this, a party may be in violation of the Indian Contract Act if they fail to speak in circumstances when speaking would be required of them or if their silence would be construed as speech.

Promise without intending to follow:

  • Though not according to English law, making a promise you don’t intend to keep is fraud.
  • In order to qualify a case under this section, it must be demonstrated that the promisor did not intend to fulfill the promise when it was made.
  • Any actions or statements made after the fact are not taken into account.

According to the Indian Contract Act, fraud occurs when someone conceals or evades a fact that they know or believe to be true, or when they make a promise, they don’t intend to keep.

Therefore, it would not be considered fraud to simply keep quiet about certain material facts that have an impact on someone’s decision to engage into a contract. Nonetheless, their silence would be fraud if it were deemed speech or if the person had to disclose the facts and occurrences to the other party.

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