Section 17 Indian Contract Act 1872 - Fraud Defined
Section 17 of the Indian Contract Act, 1872 defines "fraud" for the law of contracts. Fraud is important because consent is not free when it is caused by fraud, and a contract induced by fraud may be voidable at the option of the party whose consent was so caused, subject to the provisions of the Act.
What is fraud under Section 17?
For contractual purposes, fraud involves intentional deception or conduct intended to induce another party to enter into a contract. The section covers false statements known to be false, active concealment, promises made without an intention to perform, other deceptive acts, and acts or omissions that another law specifically declares fraudulent.
Text and meaning of Section 17
Section 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 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 by one having knowledge or belief of the 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.
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 are such that the person keeping silence has a duty to speak, or unless the silence is itself equivalent to speech.
Five forms of fraud explained
| Clause | What it covers |
|---|---|
| Section 17(1) | A false statement of fact made by a person who does not believe the statement to be true. |
| Section 17(2) | Active steps to hide a material fact by a person who knows or believes that fact. |
| Section 17(3) | A promise made when the promisor has no intention of performing it at the time the promise is made. |
| Section 17(4) | Other conduct fitted to deceive, even if it does not fall precisely within the earlier clauses. |
| Section 17(5) | An act or omission that another applicable law expressly treats as fraudulent. |
Is silence fraud?
Ordinarily, mere silence about a fact that may affect another person's willingness to contract is not fraud. The statutory explanation creates two important exceptions: silence may amount to fraud where the circumstances impose a duty to speak, or where silence itself is equivalent to a representation.
Illustrations under Section 17
- A sells by auction to B a horse which A knows to be unsound. A says nothing about the unsoundness. In the circumstances stated in the illustration, A's silence is not fraud.
- If B is A's daughter and has just come of age, their relationship may create a duty on A to disclose that the horse is unsound.
- If B tells A, "If you do not deny it, I shall assume that the horse is sound," and A remains silent, A's silence is equivalent to speech.
- Where A and B are traders and A privately knows of a change in prices that would affect B's willingness to proceed, A is not, merely for that reason, bound to inform B.
Fraud, free consent and voidability
Section 14 provides that consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake within the relevant provisions of the Act. Where consent to an agreement is caused by fraud, Section 19 generally makes the agreement voidable at the option of the party whose consent was so caused, subject to the statutory qualifications.
Fraud and misrepresentation are different
Section 17 is directed to intentional deception. Section 18 separately deals with misrepresentation. Whether particular conduct amounts to fraud or misrepresentation depends on the facts, including the representation made, the maker's knowledge or belief, intention, concealment, and the circumstances in which consent was obtained.
Practical points
A claim of contractual fraud is fact-sensitive. It is generally necessary to identify the representation, concealment, promise, act or omission relied upon; explain why it was deceptive; connect it with the intention to deceive or induce the contract; and show how it affected consent. The legal consequence must then be considered with Section 19 and any other applicable law.
This page explains Section 17 of the Indian Contract Act, 1872 for general legal information. The statutory text and its application should be checked against the current official text and the facts of the particular matter.