National Law Insitute Univiersity, Bhopal: Law of Contracts - Second Trimester Project

NATIONAL LAW INSITUTE UNIVIERSITY, BHOPAL
LAW OF CONTRACTS - SECOND TRIMESTER PROJECT
TOPIC:- SECTION 17 ‘FRAUD’
SUBMITTED TO:- SUBMITTED

BY:-
Ms. Neha Sharma Siddharth Vishwakarma
Assistant professor 2018BALLB28

CERTIFICATE
This is to certify that the Project titled “FRAUD” has been prepared and
submitted by Siddharth Vishwakarma who is currently pursuing
B.A.L.L.B(Hons.) from National Law Institute University, Bhopal in fulfilment
of Law of Contracts. It is also certified that this is his original work and this
work has not been submitted to any other university or published in any journal.
I understand that I myself could be held responsible and accountable for

plagiarism, if any, detected later on.
Date:
Signature of the Student :…………………………….
Signature of the Supervisor :…………………………….

ACKNOWLEDGEMENT
I would like to acknowledge and extent my heartfelt gratitude to Associate Prof.
Ms. Neha Sharma for guiding me throughout the development of this Project
into a coherent whole by providing helpful insights and sharing her brilliant
expertise. I would also like to thank the officials of The Gyan Mandir, NLIU for
helping me to find the appropriate research material for this project. I am deeply
indebted to my parents and friends for all the moral support and encouragement.
Siddharth Vishwakarma
Table of Contents
CERTIFICATE.....................................................................................................2
ACKNOWLEDGEMENT....................................................................................3
INTRODUCTION................................................................................................5
Essentials of Fraud................................................................................................5
MERE SILENCE IF NO FRAUD........................................................................7
WHEN SILENC IS FRAUD................................................................................8
Promise made without intention of performing..................................................10
CASE ANALYSIS.............................................................................................12
REVIEW OF LITERATURE.............................................................................14
CONCLUSION...................................................................................................15
BIBLIOGRAPHY...............................................................................................16
INTRODUCTION
‘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 declares to be fraudulent.
Explanation. Mere silence as to facts likely to affect the willingness of a
person 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 to, or unless his silence, is, in itself,
equivalent to speech.
Essentials of Fraud
Analysing the definition of fraud under Section 17, we get the following

essential elements of fraud:
The Act of fraud must be done:
 By the party to the contract himself

 With his connivance
 Or by his agent
There must be a false representation or assertion – Section 17 (1)

To constitute fraud there must be conjugation of 2 things –
 A representation or assertion of a fact which is not true and

 The person making such representation or assertion of fact does not
believe it to be true.
This is what is meant by suggestio falsi or suggestion of falsehood coupled with

the knowledge of its falsity.
There must be active concealment of fact – Section 17 (3)
By active concealment of certain facts there is an effort to see that the other
party is not able to know or discover the truth. He is made to believe something
is true whereas that is false. This is known as SUPPRESIO VERI or suppression
of fact purposefully.
It is something different from passive concealment. Passive Concealment means

mere silence as to material facts. An Active concealment of a material fact is
fraud. The expression “any other act fitted to deceive” naturally means any act
which is done with the obvious intention of committing fraud. For example,
where a person surrendered his land to the state which was accepted after
inquiry, but the land had already been acquired under the Land Acquisition Act,
it was held that the fact of inquiry could not wipe out the consequence of fraud.
The transaction of surrender was a nullity. Where the seller of property did not
disclose to the buyer pending litigation about the property, the buyer was
allowed refund of his money with 6 percent interest.1
1
P.L. Raju v Dr Nandan Singh, (2005) 5 ALD 402
MERE SILENCE IF NO FRAUD
False impression is ordinarily conveyed by deliberate misstatement of facts. But

if may also be done by active concealment of material facts. Mere silence as to
fact likely to affect the willingness of a person to enter into a contract is not a
fraud. Unless the circumstances of the case are such that, regard being had to, it
is the duty of the person keeping silence to speak or unless his silence is in itself
equivalent to speech.
A contracting party is not obliged to disclose each and everything to the other
party.
KEATES V. LORD CADOGAN
Facts: A house was let out for three years without disclosing to the tenant that it
was such a ruinous and dangerous state as to be dangerous to occupy, a fact in
the landlord’s knowledge. When the tenant discovered this fact he applied to
have the contracts set aside, arguing that the landlord should have disclosed the
real state of the house.
Held: The court did not allow the relief. There was no warranty that the house
was fit for immediate occupation. No misrepresentation was made, nor it was
the case that the plaintiff was acting on the impression produced by any conduct
on the part of the owner as to the state of the house or that he was not to make
investigation before he began to reside in it. There was no obligation on the
owner to say anything about the state of the house.
A contracting party is under no obligation to disclose the whole truth to the

other party or to give him the whole information in his possession affecting the
subject matter of the contract. It is under this principle that a trader may keep
silent about a change in prices. A seller, who puts forth an unsound horse for
sale but says nothing about its quality, commits no fraud.
Silence is not fraud unless:
1. There is duty to speak.
 Contract of utmost good faith
 Disclosure of change in statement.
 Disclosure of half truth.
 Disclosure required by statute.
2. Silence is equivalent to speak.
Mere silence as to facts likely to affect the willingness of a person 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. Explanation clearly mentions this exception. A person, who
keeps silence knowing that his silence is going to be deceptive, is no
less guilty of fraud.
Illustration: B says to A ‘‘If you do not deny it, I shall assume that the
horse is sound”. A says nothing. Here, A’s silence is equivalent to
speech.
Srikrishnan vs. Kurukshetra University
An examinee didn’t mention shortage of attendance in his examination
form. University cancelled his examination on the ground of shortage
of attendance. The court held that examinee was silent as to his
attendance and university administration had means to obtain
information about his attendance. It could have known by ordinary
diligence Kurukshetra University was held liable.
WHEN SILENCE IS FRAUD
1. When parties stand in Fiduciary Relationship.

A relationship in which one party places trust, confidence and reliance
on and is influenced by other party who has fiduciary duty to act on
the benefit of the party.
A sell his car which he knew to have a defective engine, to his son
B.A said nothing to B about the defect of the engine. This amounts to
fraud as the relation between the father and the son is that of trust, and
makes it father duty to tell his son about the condition of the car’s
engine.
2. When contracts are of ubberimae fidei (contract of utmost faith).
In some contracts, all material facts should be disclosed compulsorily,
whether it is asked by the party or not. This kind of contract, where all
material information should be provided if know as contract of
ubberimae fidei. In such contract any disclosure of material facts
would amount to fraud.
Haji Ahmad Yarkhan v Abdul Gani Khan

Fact: The plaintiff spent a sum of money to mark the engagement of
his son. He then discovered that the girl suffered from epileptic fits
and so broke off the engagement. He sued the other party to recover
from them compensation for the loss which he had suffered on
account of their deliberate suppression of a vital fact which amount to
fraud.
Held: The court relied upon the decision of the House of Lords in
Nocton v Lord Ashburton, where it was pointed non-disclosure of the
truth, however deceptive in fact, does not amount to fraud, unless
there is a duty to speak. It further said that the law imposes no general
duty on anyone to broadcast the blemishes of his female relations, not
even it those who are contemplating matrimony with them. There was
no fiduciary relation between the parties. The engagement was
however held to be voidable by reason of the misrepresentation, but
the plaintiff was not entitled to recover any compensation under
Section 75 of the Contract Act.
Example of contract of ubberimae fidei:
 Contract of insurance- Insurance contracts are founded upon the
principle of utmost good faith. The proposer (person applying for
insurance) is under duty to disclose all facts know or ought to be
known to him, which are likely to affect the acceptance of the
proposal.
 Contract for sale of immovable property- Under sec.55 of transfer
of property act in contracts of immovable property, the seller if
bound to disclose the buyer about all the material facts. All the
material facts with regard to defect or limitation in the title of
property and any charge or pledge in favour of the 3rd party should
be disclosed.
 When silence if equivalent to Speech.
 Contract of partnership- Partners of the firm share a relation of
mutual agency and the relationship of agency is a fiduciary. Hence
all partners have duty to consult and inform the other partners and
must be faithful to one another. Thus, a partner making secret
profit have to be give it back to the firm as such profit would
constitute deceit.
 Half-truth- Silence may amount to fraud when a person discloses
only half truth. Half truth is worse than a blatant lie. Partially
truthful disclosures may easily deceive the other party.
Prospectus of a company disclosing only average dividend
declared by the company in the last 5 years instead of projecting an
actual picture of declining dividends over that period.
Promise made without intention of performing
To tie up a person to a promise with no intention of performing from one’s side

and with the intention of only preventing the other form dealing with others, is
an example of a promise made without intention of performing it. This is the
third type of fraud included in the definition in Section 17. A purchase of goods
without any intention of paying the price is a fraud of this species. 2
A builder entered into a large number of bookings, nearly three times the
available units of accommodation and collected moneys. This was held by
Supreme Court to be fraud because he should have known that he would not be
able to perform the contract with all of them. There was no provision for
interest on the deposit money. Inspite of this he was held liable to pay interest.
The court said that there was fraud causing inducement for booking by the
purchasers: such fraud creates liability even outside the agreement.3
CASE ANALYSIS
2
Cloud v London& N.W. Rly Co, (1871) LR 7 Exch 26; Whitaker, ex p,(1875) LR 10 Ch 449
3
DDA v Skipper Construction Co(P) Ltd, (2000) 10 SCC 130
REVIEW OF LITERATURE
CONCLUSION
BIBLIOGRAPHY
i) WEBSITES:
• www.manupatra.com
• www.indiakanoon.org
• www.lexology.com
• www.casemine.com
ii) BOOKS:
• Contract and Specific Relief by Avtar Singh
• The Indian Contract Act,1872 by Pollock and Mulla

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NATIONAL LAW INSITUTE UNIVIERSITY, BHOPAL

LAW OF CONTRACTS - SECOND TRIMESTER PROJECT

TOPIC:- SECTION 17 ‘FRAUD’

SUBMITTED TO:- SUBMITTED

Ms. Neha Sharma Siddharth Vishwakarma

Assistant professor 2018BALLB28

I understand that I myself could be held responsible and accountable for

Signature of the Student :…………………………….

Signature of the Supervisor :…………………………….

I would like to acknowledge and extent my heartfelt gratitude to Associate Prof.

MERE SILENCE IF NO FRAUD........................................................................7

WHEN SILENC IS FRAUD................................................................................8

Promise made without intention of performing..................................................10

Analysing the definition of fraud under Section 17, we get the following

The Act of fraud must be done:

 By the party to the contract himself

There must be a false representation or assertion – Section 17 (1)

 A representation or assertion of a fact which is not true and

This is what is meant by suggestio falsi or suggestion of falsehood coupled with

There must be active concealment of fact – Section 17 (3)

It is something different from passive concealment. Passive Concealment means

False impression is ordinarily conveyed by deliberate misstatement of facts. But

A contracting party is under no obligation to disclose the whole truth to the

WHEN SILENCE IS FRAUD

1. When parties stand in Fiduciary Relationship.

Haji Ahmad Yarkhan v Abdul Gani Khan

To tie up a person to a promise with no intention of performing from one’s side

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