Section 17 Contract Act: 'Fraud' defined

Section 17 of Indian Contract Act: 'Fraud' defined

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

"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, or unless his silence is, in itself, equivalent to speech.

Illustrations

(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A.

(b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound.

(c) 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.

(d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Promise Sec 2(b) Contract Sec 2(h)

Legal Commentary & Landmark Judgments: Section 17

Section 17 of the Indian Contract Act, 1872 defines 'fraud', encompassing intentional misstatements, active concealment, empty promises, and deceptive acts designed to induce another into a contract.

Active Fraud & Intentional Deception: Section 17 defines fraud as acts committed with intent to deceive another party or induce them into entering a contract, including false suggestions, active concealment, or empty promises.
Silence as Fraud Threshold: Mere silence is not fraud unless there is a positive duty to speak (contracts uberrimae fidei) or where silence is equivalent to speech, vitiating consent and rendering the contract voidable.

Key Landmark Precedents:

Derry v. Peek (1889) 14 App Cas 337: The House of Lords established that fraud requires proof that a false representation was made knowingly, without belief in its truth, or recklessly, careless whether it be true or false.
Shri Krishan v. Kurukshetra University (1976) 1 SCC 311: The Supreme Court held that mere silence does not amount to fraud unless there is an active duty to speak. A student who did not disclose short attendance when the university failed to verify records did not commit fraud under Section 17.
Vimlesh Kumari Kulshrestha v. Sambhajirao (2008) 5 SCC 58: The Supreme Court held that an agreement obtained by active concealment of title defects constitutes fraud under Section 17, rendering the contract voidable and entitling the buyer to rescission and damages.

Legal Commentary:

Fraud unravels all transactions ('fraus omnia corrumpit'). An agreement induced by fraud is voidable under Section 19. The aggrieved party may either rescind the contract and recover restitution, or affirm the contract and insist on being placed in the position they would have occupied had the representation been true, accompanied by an action in deceit for damages.

Section 17: 'Fraud' defined

Section 17 of Indian Contract Act: 'Fraud' defined

Legal Commentary & Landmark Judgments: Section 17