TOPIC:-ANALYSIS FRAUD IN THE LIGHT OF THE

INDIAN CONTRACT ACT, 1872

BHAURO DAGDU PARALKAR vs STATE OF
MAHARASHTRA AIR 2005 SC 3330

Table of content

ACKNOWLEDGEMENT

Chapter-1 Synopsis

1. Statement of the Problem

2. Research Objects
3. Research Question
4. Research Method

Chapter-2-Introduction

Chapter-3-Esstentials of Fraud

Chapter-4-Grouds where we can found fraud

Chapter-5-Consequences of fraud

Chapter-6-Case study

1. Facts
2. Issue
3. Judgement

Chapter-7-Suggestion and Conclusion

Bibliography
 CHAPTER-1

Synopsis

Statement of the problem

In this case (Bhauro Dagdu Paralkar vs. State of Maharashtra) State

Government framed pension benefit for freedom fighters. They determine
genuine freedom fighters. But some people who were not freedom fighters but
they took the pension by doing fraud.

Research objectives

1. To know what is fraud.

2. To understand the ground where we can find fraud.

Research questions

1. What is fraud?
2. What are the essential of fraud?

Research method

This project is based on doctrinal method of research.

 Introduction

The element of fraud in a contract vitiates the contract and such a contract by
fraud is voidable at the option of the aggrieved party.

Very often facts are misrepresented, that is, they are declared in a distorted
manner. When facts are intentionally misrepresented, it is known as fraud ,
which is dealt with in Section 17 of the ICA. However, unintentional or
innocent misrepresentation is not fraud. They are simply misrepresentation
falling under Section 18 of the Act. Thus, where a false statement is made
intentionally, with the knowledge that it is false, with a view to deceive the
other party and thereby inducing him into entering the contract – it is known as
fraud .

But when the person making the false statement believes the statement to be
true and does not intend to deceive the other party to enter into the contract – it
is known as misrepresentation.

Thus it can be said that fraud is a willful misrepresentation or a fraudulent

misrepresentation and includes all the acts committed by a person to deceive the
other .

Definition
Section 17 of the Act defines fraud as –
“Fraud” means and includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agents, with intent to
deceive another party thereto his agent, or to induce him to enter into the
contract.
Section 17 (1) – the suggestion as to a fact of that which is not by one who does
not believe it to be true – is known as SUGGESTIO FALSI or suggestion of
falsehood.
Section 17 (2) – the active concealment of a fact by one having the knowledge
or belief of the fact – is known as SUPPRESIO VERI or suppression of a fact.
Section 17 (3) – a promise made without any intention of performing it. It
means a promise made falsely with the intention of inducing the other party to
make a reciprocal promise and thereby enter into a contract.
Section 17 (4) – any other Act fitted or designed to deceive.
Section 17 (5) – any such act or omission as the law specially declares to be
fraudulent.

Explanation to Section 17

This Explanation states a very important proposition of law. According to

Explanation to Section 17 – the mere silence as to a fact likely to affect the
willingness of a person to enter into a contract is not fraud. However, such
silence is to be held as fraud , if the circumstances of the case that –

 It is the duty of the person keeping silence – to speak

 That his silence in itself is equivalent to speech.
 Essentials of Fraud

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

essential elements of fraud –

 Party to the contract –

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.
The implication of such active concealment is more grave where it is the duty of
the person to disclose – fiduciary relationship.

Grounds where we can found fraud

1. A promise made without the intention of performing it – Section

17(3)

When a person makes a promise then it is deemed to be an undertaking by him

that he will perform the promise. According to Section 17(3) if there is no such
intention to perform the contract, at the time when the contract was made, it
amounts to fraud.

2. Any other Act fitted or designed to deceive – Section 17(4)

This provision is general in nature and is intended to include other means of

trick and unfair means intended to deceive any one other than by means of
suggestio falsi, suppresio veri or a promise made without the intention to
perform it. Under this Section, any such acts will amount to fraud.

3. Any such acts of omission as the law specially declares to be

fraudulent – Section 17(5)

According to Section 17(5) fraud includes any such acts of omission which
specially declares it to be fraudulent. For instance under the TP Act 1882, under
Section 55 , the seller of immovable property is bound to disclose to the buyer
all material latent defects in the property. Not doing so will amount to fraud.

4. Representation must relate to a fact-

The representation, assertion, intention or suggestion under Section 17(1) must

relate to a material fact.
Any superfluous opinion or exaggerated statement or flourishing description are
not regarded as representation of facts.

Illustration –

A while selling rings to B says – ” the rings are as good as that of Y.” this is a
mere statement of opinion which cannot be regarded as amounting to fraud.

5. Wrongful intention –

To constitute a fraud it is necessary that a person should intentionally make a

false statement to deceive another party and thereby induce him to enter into a
contract. If the intention to deceive the party is absent, there is no fraud – vide
case of DERRY vs. PEEK.

6. The acts must have in fact, deceived the party –

A mere attempt to deceive the party is not fraud under the ICA unless the party
is actually deceived. Fraudulent misrepresentation must have been made with
an intention to deceive. According to the Explanation appended to Section
29 of the Act, deceit which does not deceive does not amount to fraud and
cannot hence make the contract voidable.

7. The other party must suffer loss –

To constitute a fraud, under the ICA, it is necessary that the other party must
have suffered some material loss as a consequence of the deceit. Hence, there is
no fraud without damage.
 Consequences of fraud

According to Section 19 where a consent to an agreement is caused by fraud ,

the agreement to a contract is voidable at the option of the party whose consent
was so caused by fraud. Until such time it is avoided, the contract is valid.

The party defrauded has the following specific remedies –

· To rescind the contract

· To affirm it

· Rescind and claim for damages

· Enforce principle of restitution

· Sue for specific performance

· If he chooses to rescind the contract he must do so within reasonable time.

When the contract is rescinded it becomes void and unenforceable.
· However, if the party chooses, he may affirm it , then the question of
rescinding the contract does not arise and the principle of estoppel will be
revoked against him.
3. Fraud is a tort. Thus, the aggrieved party can in a case of fraud , apart from
rescinding the contract, can file a suit to claim damages.
4. He may enforce the principle of restitution against the other party –
under Section 64 of ICA.
5. He may insist for a decree of specific performance of the contract minus the
element of fraud.
 Case Study
Facts
State Government framed pension benefit for freedom fighters. They determine
genuine freedom fighters. They stated that this pension scheme was only for
freedom fighters. Large number of persons granted pensionary benefits in State.
They checked eligibility of freedom fighters. It was found that 354 cases to be
fraud and that they manage to get benefits submitting false documents. Writ
petition filed by suspected beneficiaries. Petitions questioning correctness of
Enquiry Committee. A commission appointed by the apex court to complete
verification. Commission to submit its report to State Government for necessary
action.
 Issue

(i) Whether a person who was not participate in freedom struggle is able to get
pension scheme?
 Judgement

It Was held by high court’s judgement is vulnerable. Allegations made were to

the effect that fraud had been practised.

People who had no role to play in freedom struggle should not be permitted to
benefit.
 SUGGESTION AND CONCLUSION

Fraud is essentially a question of fact, and the person who alleges that has to
prove the same. If the plaintiff seeks the annulment of the decree on the ground
of fraud or misrepresentation, he has to specifically plead the same and mention
the circumstances which can lead to the conclusion of the existence of fraud or
misrepresentation. Merely making a mention of fraud or misrepresentation in
the pleadings is not enough.
 BIBLIOGRAPHY

DR. BANGIA R.K , CONTRACT-I, ALLAHBAD LAW AGENCY,

MATHURA ROAD, FARIDABAD-121 002

Phone- (0129) 2295647, 2295768 fax- 0129-4160099

e-mail- allahbdlawagency@gmail.com

web- www.allahbadlawagency.com