Section 17 of Indian Contract Act

17. “Fraud” defined.— “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 of 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 speak3, 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.

Final Thoughts

Introduction

Contracts are based on trust, honesty, and willingness of parties. If one party tricks the other to enter into a contract, then it becomes unfair and invalid. The Indian Contract Act, 1872 protects parties from such dishonest acts. Section 17 of the Act defines “fraud” in the context of contracts.

Definition of Fraud under Section 17

According to Section 17, “Fraud” means any act committed by a party to a contract (or his agent), with the intention to deceive or to make the other person enter into a contract by false belief.

Fraud includes the following five acts:

(1) False Suggestion as Fact: When someone tells a lie knowingly or presents something false as truth. Example: A says to B that a land has no legal issues, even though A knows there is a dispute. If B buys based on this, it’s fraud.

(2) Active Concealment of Fact: Hiding important facts purposely even when the person knows them. Example: A sells a car to B, hiding the fact that the car engine is damaged.

(3) Promise Without Intention to Perform: Making a promise without any real plan to do it. Example: A promises to deliver 500 bags of rice to B but never intended to deliver from the beginning.

(4) Any Other Act Fitted to Deceive: Any dishonest act meant to cheat the other person. Example: Forging documents, creating fake identities to mislead someone into a contract.

(5) Any Act or Omission Declared Fraudulent by Law: Any specific act or failure to act that the law declares as fraud. Example: Under certain company laws, non-disclosure of liabilities in prospectus is fraud.

Essential Elements of Fraud

To prove fraud, these elements must be present:

• False statement or act
• Knowledge that it is false
• Intention to deceive
• Reliance by the other party on such act
• Damage or loss suffered by the deceived party

Explanation: When Silence is Fraud

Generally, silence is not fraud. But in some situations, silence can become fraud, such as:

• When there is a duty to speak (special relationship or trust exists)
• When silence equals misleading or giving false impression

Important Illustrations (from the Act)

(a) A sells a horse to B in auction, knowing the horse is sick. A says nothing. Not fraud, because A was not bound to say anything.

(b) B is A’s daughter who just turned 18. A hides the fact that the horse is sick. This is fraud, because there is a duty to speak due to the close relationship.

(c) B says, “If you don’t deny, I will assume the horse is fine.” A stays silent. This is fraud, as silence is equal to agreement here.

(d) A knows about market price changes and does not tell B. Not fraud, because A is not legally bound to share business information.

Legal Effects of Fraud in a Contract

If fraud is proven in a contract:

• The contract becomes voidable at the option of the party who was deceived.
• The victim can cancel the contract.
• The victim may also claim compensation for any losses.

Difference between Fraud and Misrepresentation

Conclusion

Section 17 of the Indian Contract Act defines fraud in a clear and structured way. Fraud includes false statements, active concealment, false promises, and any other dishonest acts. The purpose of this section is to ensure that contracts are made in good faith and fairness. A contract entered into by fraud can be cancelled, and the affected party has legal remedies.