This article is written by Varsa Thapa of 2nd year B.B.A L.L.B studying in Army Law College, Pune.

FRAUD

Section 17 of Indian Contract Act 1872, defines  fraud as any activity or act committed by a party being in a contract with intention to deceive or fool the other party, agent or to induce him to enter the contract. Also defined as making a false representation which gains or cause loss :- 

1. A promise made without any intention of performing it.
2. Any other act fitted to deceive.
3. Any such act or omission as the law specially declares to be fraudulent.
4. When one party comes up with false facts.
5. When the party tries to hide information even if he/she has complete knowledge of it.
6. Making a promise and not performing it.

To establish 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 do not communicate about facts are likely to affect the consent of the other party to the contract, and mere silence does not amount to fraud unless the conditions of the case shows that there is a responsibility to speak or silence equivalent to speech.

Essentials of Fraud

Some of the ingredients that are necessary for a case to be fraud are:

• False representation should be done intentionally, or
• Without belief in its truth, or
• Made carelessly without knowing whether it is true or false.

Example of Fraud

If “A” & “B” come into a contract and “B” is an illiterate who is unable to read . “A” write something without the knowledge of  “B” and make him sign the contract, then this is Fraud. Fraud by misrepresenting the data. This type of contract are usually Voidable contract.

Mere Silence is Not Fraud

The Indian Contract Act of 1872 states that Mere Silence is not considered as Fraud. Section 17 of the Act, which deals with “fraud,” says that a contract persuaded by fraud is voidable at the option of the party deceived. However, for a contract to be declared voidable due to fraud, it must be shown that a false representation was made with an intention to deceive. Generally, a failure to disclose information or a mere silence is not considered fraud according to the Indian Contract Act, of 1872, but if the circumstances of the case make it necessary for the person to keep silence to speak, or unless his silence is equal to speech, fraud can be considered.

MISREPRESENTATION

Under section 18 of Indian Contract Act 1872, defines misrepresentation that statement is misrepresented falsely or the data is manipulated done with or without any intention of harm. It includes making innocently false statement as well as manipulating the fact for personal gain without the knowledge of other’s party.

1.   Making innocently false statement.
2.   Negligence of facts or data with out the knowledge of party.  
3.   Manipulating the data for personal gain.
4.   False statement made to induced another party’s decision related to a contract.

Types of Misrepresentation

There are three types of misrepresentation:-

1. Fraudulent misrepresentation– Fraudulent misrepresentation happens when a false representation has been made  and party making the initiative representation already knows that it was false. It is a reckless statement made by a party to induce  the other party to enter into a contract.
2. Negligent misrepresentation-Negligent misrepresentation is a type where initiative of contract did not attempt to verify the statement made in contract before forming it. Moreover the party who has a negligent misrepresentation does not know that the claim is false as He/She does not have intention to deceive  the other party.
3. Innocent misrepresentation– Innocent misrepresentation happens when the maker of contract  as the defendant was unaware but the defendant has reasons for believing it was there at the time of making the representation.

Example of  misrepresentation

If a Restaurant named “XYZ” advertises its burger by editing its picture in such a way that it look more appetizing and big. But the actual size of burger is small or does not match the picture in advertisement then this is a kind of misrepresentation

DIFFRENCE BETWEEN FRAUD AND MISREPRESENTATION

CASES UNDER FRAUD

• Vidya Drolia v/s Durga Trading Corporation (2021)

       In the case of Vidya Drolia v/s Durga Trading Corporation, the apex court mentioned that Sec 17 of The Indian Contract Act would apply if the contract it self has fraud or cheating. Therefore, a difference is made between a contract obtained fraud and after contract fraud and cheating. The same that is after after contract would fall outside section 17 of the Indian Contract Act and therefore the remedy for damages will be available but not the remedy for treating the contract itself as void.

• 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 was issued for the payment but it got dishonoured and the defendant believed 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 had issued the cheque with the intention of not paying and deceived the other party.

CASES UNDER MISREPRESENTATION

• National Insurance Co. Ltd. Thr Asstt manager v/s Guddi Bai (2022)

       In the case of National Insurance Co. Ltd Thr Asstt Manager v/s Guddi Bai, the court determined that the party whose contract’s consent is obtained by misrepresentation can demand the contract to be carried out and he or she can be placed in the same situation as if the representation made had been right. 

• 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 misrepresentation, the contract will be voidable at the option of the party whose consent was taken under the misrepresentation.

REFRENCES 

https://blog.ipleaders.in/difference-between-fraud-and-misrepresentation 

https://legalpaathshala.com/invalid-contract-under-indian-contract-act/