“MERE SILENCE DOES NOT AMOUNT TO FRAUD”

INTRODUCTION
Free consent is the most important essential of a valid contract according to Section
10 of the Indian Contract Act, 1872. Fraud and misrepresentation vitiates free consent
therefore rendering the contract voidable. A person is said to commit fraud when he/she
implies or suggests something to the other party, leading them to believe something false or
contrary to the truth. This brings us to the logical principle drawn from the above rationale
that “Mere Silence does Not Amount To Fraud” unless it is absolutely imperative for it to be
disclosed. This article further elaborates on what constitutes as fraud and what doesn’t qualify
to be called fraud.

DEFINITION OF FRAUD
Although a few legal statutes talk about fraud, its definition is provided under 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 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.”1

ESSENTIALS OF FRAUD
From the above definition we understand that there are certain essentials of fraud which
are as follows:-
1. A false statement from one of the parties who themselves do not believe it to be true.
2. Wrongful intention of deceiving the other party thereto induce them into entering a
contract.
3. Active concealment of facts.
4. Promises made without any intention to follow through.

1
https://indiankanoon.org/doc/299780/
A False Statement of facts:-

Stated in Section 17(1) 2, it clarifies that, in order for an action to be called fraud there
should be a statement of fact which is false or contrary to the truth. A mere statement that
expresses someone’s opinion cannot be constituted as fraud.
For example: A deliberately makes a false statement and lies about his age in order to
receive an insurance policy. This amount to fraud and the contract is voidable at the option of
the insurance company.
The case in point is of the Edington V. Fitzmaurice 3. A company, in this case, was in
great financial strain thus requiring a loan to pay off debts. While taking the loan, the
directors of the company stated that it was for the development, purchasing assets and
building infrastructure. It was held that the directors of the company had committed fraud
since they deceived while taking the loan.

Wrongful Intention of Deceiving the other party:-

Wrongful intentions of deceiving the other party in order to induce them into entering
the contract becomes clear from statements that are made to purposely mislead the party. It is
important that the statement which is made completely misleads the party even after
practising due diligence.
For example: in the case of Kamal Kant V. Prakash Devi4, a son filed a case against
his mother and some other, seeking the cancellation of a trust deed claiming that he was
deceived into entering the contract as the defendant had falsely made a statement telling him
that it was a general power of attorney. The verdict declared the judgment in the favour of the
defendant and held that since the plaintiff was and educated man and had every means to
determine the contents of the contract; no fraud was committed.

Active concealment of Facts:-

Section 17(2)5 indicates to the aforementioned principle. Mere non-disclosure of
simply does not constitute fraud unless such facts would have been discovered ordinarily had
there not been attempts by the other party to hide those facts leading to formation of a
contract through deception.
For example: A, who is C’s daughter is entitled to get an estate after C’s death. Upon
C’s death B, son of C prevents A from knowing about C’s death and sells the estate to
another party, thereby, committing fraud.

2
Indian Contract Act, 1872
3
(1885) 29 Ch 459, Indian Contract Act, R K Bangia
4
A.I.R 1976 Raj. 79
5
Indian Contract Act, 1872
Promise made without any intention to follow through:-
Unlike English, Section 17(3)6 suggests that anyone who induces another party to
enter into a contract by making a false promise that they do not intend to fulfil, amounts to
fraud.
For example: A is selling his house to B. The bathroom of the house is damaged but A
promises B that if he buys the house now, A will get the bathroom renovated free of cost. A
does not fulfil his promise after B buys the house, committing fraud and making the contract
voidable at the option of B.

Any act or omission as the law specially declares fraudulent

Sub clause (4)7 and (5)8 of this section provide that any other act fitted to deceive or
cases in which the law requires performance of specific duties and failure to do so would
amount to fraud, respectively. These clauses are in place to encompass all other acts of fraud
which do not come under the purview of the earlier three.
In the case of Akhtar Jahan Begum V Hazarilal 9, the defendant had sold some
property to the plaintiff stating in the sale deed that the defendant would not be liable if the
plaintiff suffers any loss owing to the former’s defect in title, prior to which the defendant
had already sold the same property to a third party without informing the plaintiff, it was held
that fraud had been committed and the contract was voidable.

MERE SILENCE IS NO FRAUD

The explanation to Section 1710 reiterates the following:-
“Mere silence as to facts likely to affect willingness of a person to enter into a contract is not
fraud, unless the circumstances of the cases are such that, regard being had to them. It is the
duty of the person keeping silent to speak, or unless his silence is, in itself, equivalent to
speech.”11
Therefore, it can be inferred that there needs to be a representation of untrue facts
through word or silence equivalent to speech. Further, a contract cannot be held voidable
merely on a trivial and inconsequential mis-statement or non-disclosure.
In Keates V. Lord Cadogan12, A let his house which was in ruinous condition, to B,
knowing that B will be immediately occupying the house A did not disclose the condition of
the hose to B. it was held that no fraud was committed by A in doing so.

6
Ibid.
7
Section 17 of the Indian Contract Act, 1872
8
Ibid.
9
A.I.R. 1927 All. 693
10
Indian Contract Act, 1872
11
https://indiankanoon.org/doc/299780/
12
(1851) 10 C.B. 591
 In the landmark case of Shri Krishnan V. Kurukshetra University 13, a student of the
university did not disclose the fact that he was short of attendance in the admission form for
examination. Neither the department or the university verified the same. Later it was held that
no fraud had been committed because the university had the means to verify the contents of
the form submitted by the student.

EXCEPTIONS:-
From the Explanation14 itself, we can discern that there are two exceptions to the
aforementioned principle, which are –
1. Duty to speak –
For some contracts it is required by law to make full disclosures. These contracts are
called Uberrimae fidei which means contract of utmost faith. The contracts included in
this category are;
 Contract of Insurance
 Contract of Immovable Property 15
 Contract of Surety Ships
 Allotment of Shares in Company
 Contract of Marriage16
 Contracts of Family Settlements

2. Silence equivalent to speech –

In certain cases silence is capable of being deceptive or giving an impression contrary
to the truth, in such cases silence amounts to fraud.
For example: A is selling a villa to B at a throw away price. B knowing that the villa
costs is a lot more expensive than the price he is getting does not disclose it to A, then B
is committing fraud.

CONCLUSION

Fraud has many aspects to it but remaining silent does not always mean that one is
committing fraud as we have understood above, but on the other it also does not mean
that by remaining silent one cannot commit fraud as we have also read the exception to
this principle.

13
A.I.R. 1976 S.C. 376
14
Section 17 of the Indian Contract Act, 1872
15
Sec. 55(i) (a) of the Transfer of Property Act, 1882
16
Hazi Ahmed v. Abdul Gani