Fraud - Section 17 under Indian Contract Law

The word "fraud" refers to a broad category of crimes. Fraud is defined as a deliberate deception intended to benefit the offender or violate the victim's rights. The stock, mortgage, and insurance markets are some of the most frequent sites for fraud, but people and companies are typically the intended victims.

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This Story also Contains

1. Definition of ‘Fraud’ - Section 17
2. Elements of Fraud
3. Misrepresentation and Fraud
4. Representation under Fraud
5. Types of Fraud
6. Consequences of Fraud
7. Conclusion

Fraud is defined as an intentional deception intended to give the perpetrator an unlawful benefit or to deny a victim their right. In the financial, real estate, investment, and insurance sectors, fraud will happen. It may be found in the sales of physical assets like stocks and bonds, as well as intangible assets like real estate like land and personal possessions like artwork and antiques.

Definition of ‘Fraud’ - Section 17

Fraud definition according to several authorities: "Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereof or his agent, or to induce him to enter into the contract," states section 17 of the Indian Contract Act 1872.

Fraud is defined as any of the following actions carried out intending to deceive or induce another party or his agent to agree by a contracting party, his connivance, or his agent.

• The assertion of something false as fact by someone who doesn't think it is true.

• The deliberate withholding of information by someone who knows or believes something.

• A pledge was made with no plans to follow through on it.

• Any other action appropriate for deception.

• Any action or inaction that the law expressly designates as fraudulent.

Elements of Fraud

1. Misrepresentation: It is the act of giving a misleading impression or omitting to reveal important information. Information that might affect the victim's decision-making process is referred to as a material fact. Any information that is important to the transaction or choice might be the subject of the deception.

2. Intent: To deceive the victim, the individual who is misrepresenting the facts must have wilfully given false information. This implies that choosing to deceive has to be deliberate.

3. Reliance: The misleading representation had to have been relied upon by the victim. This reliance needs to be reasonable, which means that the victim's circumstances justified her conviction that the statement was true.

4. Damage: The deception must cause the victim to experience loss or harm. This might involve monetary loss, injury to one's reputation, or other kinds of losses.

Components of Section 17

When Section 17(1) is examined, the following components are revealed:

• A proposal about a fact ought to be made.

• The stated fact ought not to be accurate.

• It should have come from someone who doesn't think the proposition is true.

• The recommendation must be made to mislead or persuade the other party to sign the agreement.

Misrepresentation and Fraud

• The primary distinction between fraud and misrepresentation is that, while both include a misrepresentation of truth intended to deceive the promisee, in the first situation the person making the proposition does not think it is true, while in the latter case, he believes it is.

• This took place during the Jai Janider Parshad vs. Rattan Lal Ahluwalia. According to common law, deception not only makes a contract voidable at the discretion of the person whose assent is gained in this way, but it also gives rise to a claim for damages related to deception.

• If it is determined that a decree was acquired via deception, a late application would still be admissible. Even the doctrine of res judicata would not apply in this case since the court lacks inherent authority to give relief.

• Fraud is defined as actions, whether verbal or written, that include the other person or authority taking a firm position in retaliation for the former's actions, whether verbal or written.

• A legitimate claim for relief from fraud may equally be supported by an innocent misstatement.

Representation under Fraud

• A declaration of opinion may occasionally be regarded as a statement of fact, but a representation is a statement of fact, whether it is current or past.

• For the representative to be able to stop the agreement, the fraudulent misrepresentation must be substantial, meaning that it should have had an impact on a reasonable man's decision on whether or not to sign the agreement.

• A fraudulent certificate was obtained in the Lillykutty v. Scrutiny Committee to gain an unfair advantage. It was decided that every solemn act is tainted by deception.

• The courts do not condone fraudulent activity. Any conduct that subverts the intent of the Indian Constitution by the government or by the populace claiming a right or privilege under it shall be considered fraud on the document.

Types of Fraud

Fraud entails lying, misrepresenting, or using deceit to get unfair or illegal benefits. Fraud may be roughly categorised into two basic types: Constructive fraud and Actual fraud. Below is a thorough description of each:

Actual Fraud

When someone intentionally misleads or deceives another party intending to cause harm or loss to the victim, this is referred to as actual fraud. This kind of fraud is distinguished by intentional acts taken to get an unfair or illegal benefit.

As an illustration:

• Financial fraud occurs when an investment advisor purposefully gives a customer misleading information about a stock to profit from the deal.

• Identity theft is the theft of a person's personal data to open bank accounts, request loans, or do other fraudulent acts.

Constructive Fraud

Regardless of the intention, constructive fraud happens when a deed, statement, or omission causes injustice or injury, particularly when one party owes another one a duty of confidence. Constructive fraud does not need the intention to deceive, in contrast to real fraud. It frequently occurs when there has been a duty or trust breach.

As an illustration:

• Fiduciary Relationships: Even in cases where there is no malicious intent, a trustee may be guilty of constructive fraud if they neglect to disclose a conflict of interest that causes the beneficiaries to suffer a loss.

• Professional Negligence: If a professional, such as an accountant or lawyer, breaches their ethical or professional obligations and causes harm to their clients, they may be held accountable for constructive fraud.

Distinguishing Actual Fraud From Constructive Fraud

• Intent: Constructive fraud does not need intent to deceive, but actual fraud must. Constructive fraud is primarily concerned with the harm that results from the obligation violation.

• Nature of actions: Constructive fraud can arise from carelessness or omissions, but actual fraud entails malicious words or acts.

• Legal Repercussions: Fraud of any kind may result in fines, restitution, and, in certain situations, even imprisonment. However, depending on the jurisdiction and particulars of the case, other remedies can apply.

Consequences of Fraud

• A contract is voidable under section 19 if permission was gained via deceit. The person who was duped may choose to withdraw the agreement to the degree that it is not carried out, or he may confirm the agreement and demand to be placed in the same situation as he would have been in if the statements were accurate.

• In the event of rescission, he may be entitled to damages and must return the advantage he got under section 64.

• The amount of damages that can be recovered is the same as what applies to tort deception, meaning that it includes all real losses that result directly from the fraudulent transaction, including subsequent losses, rather than only losses that were reasonably anticipated.

• Section 19 also makes a transaction voidable in cases where a document meant to be in favour of one person was transferred to another due to fraud committed by the defendant.

Conclusion

Therefore, it would not constitute fraud to simply remain silent about certain important facts that may influence someone's decision to engage in a contract. However, silence might be considered fraud if it were to be interpreted as speech or if the person had an obligation to tell the other party the truth. Because non-disclosure of pertinent data by one side might cause harm to the other, just silence can lead to fraud. Frauds that are commonplace worldwide can be the result of a serious financial need. The current light punishment for fraud ought to be replaced with a stiff one to give residents a moral compass and prevent them from being influenced by the financial gain associated with it.