Free Consent - FRAUD

Under Indian Contract Act 1872

FREE CONSENT-FRAUD
Section 13 of Indian Contract Act 1872 talks about the consent of people in agreement with the same
things in the same sense. Section 14 of ICA further defines consent as an inevitable matter for a valid
contract and the factors vitiating the free consent are Coercion (section 15), Undue influence (section
16),Fraud (section 17), Misrepresentation (section 18) or Mistake (section 20-22). Fraud occurs based
on false suggestions and statements.
FRAUD
According to Section 17 of the Indian Contract Act, 1872 “FRAUD” means and includes any
of the following acts committed by a party to a contract, or by his agent, with intent to deceive
another party thereto or his agent, or to induce him to enter into the contract:
● 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 – is known as suppresio veri or suppression of a 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.
ESSENTIALS OF FRAUD
● There should be a false statement of fact by a person who himself does not believe the
statement to be true.
● The statement should be made with a wrongful intention of deceiving another party
and inducing him to enter into the contract on that basis.
False statement of fact:
In fraud, it is necessary that there should be a statement of fact which is not true. Mere expression of
opinion is not enough to constitute fraud.
Case: Peek vs Gurney (1873)
A company's prospectus included no mention of the existence of a document exposing liabilities. This
provided the impression that the business was doing well. The perception would have been very
different if the existence of the document had been revealed. According to the court, nondisclosure
constituted fraud, and anyone who purchased shares on the basis of this prospectus could avoid the
contract
Case: Edington vs. Fitzmaurice
A corporation was in serious financial trouble and needed funding to pay off some urgent liabilities.
Debentures were issued by the corporation to raise the funds. During the loan application process, the
directors declared that the funds will be used for the company's development, equipment purchase,
and building completion. The directors were found to have cheated the system.
Mere silence is no fraud:
Exception: When there is a duty to speak, keeping silent is fraud.
When silence is, in itself, equivalent to speech, such silence is a fraud
Case: Shri Krishan v. Kurukshetra University
Shri Krishan, a candidate for the L.L.B. exam who was short of attendance , did not disclose this
information on the admission form for the exam. Neither the head of the law department nor the
university administration conducted a thorough investigation to ascertain the truth. The Supreme
Court ruled that there was no fraud by the candidate and that the institution had no authority to
withdraw the candidate on that basis.
EXAMPLES OF FRAUD
● Manoj was induced to buy shares in a company on account of a false statement made by a
stranger. It was held that he could not get out of the bargain because a false statement was not
made by the company or its agent.
● Manoj says to Deepika his coat is made of pure wool ,though he knows that it is untrue .
Deepika purchases the coat believing Manoj’s statement to be true ,It is a fraud by Manoj and
therefore contract is voidable at Deepika’s option
● As an investment manager, Alex goes to Ben's residence and offers him a scheme in which he
may deposit money that will be doubled in just one month. Ben deposits Rs. 50,000 into his
account right away. Alex stole the money, which is considered fraud.
CASES
Peek vs Gurney (1873)
Edington vs. Fitzmaurice
Shri Krishan v. Kurukshetra University
State of Punjab and Others v. Rafiq Masih (white washer) and Others
SOURCES
Free Consent - Section 14 of Indian Contract Act, 1872 - Law Corner
What is Fraud? definition, elements, examples and effect - Business Jargons
Fraud under Indian Contract Act - LexForti
fraud cases | India Judgments | Law | CaseMi