HIMACHAL PRADESH NATIONAL LAW UNIVERSITY(SHIMLA)

PROJECT WORK ON:

DOES MERE SILENCE AMOUNT TO FRAUD OR NOT?

SUBMITTED TO:-DR.AMBIKA

SUBMITTED BY:

-PRINCE KUMAR

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ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regard to my guide
DR.AMBIKA for her exemplary guidance, monitoring and, constant encouragement
throughout the course of this project. The blessing, help and, guidance given by him
time from to time shall carry me a long way in the journey of life on which I am
about to embark.

I am obliged to staff members of Himachal Pradesh National Law University, for

the valuable information provided them in their perspective fields. I am grateful for
this cooperation during the period of my assignment.

Last but not least, I thank the almighty, my parents and my friends for their constant
support and encouragement without which this project would not be possible.

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 DECLARATION

I hereby declare that,

1. The work “DOES MERE SILENCE AMOUNT TO FRAUD OR NOT?

”, submitted here, is my original piece of
work and authentic to the best of my knowledge, completed under the supervision
and
guidance of
DR.AMBIKA Professor of law, Himachal Pradesh National Law University, Shimla.
2. I have provided correct and relevant information in my work.
3. I have read and understood the content of my entire work on the State activity in
the liberal system. 4. The work has been properly
acknowledged, and references to the sources used, including printed sources, the
internet, or any other sources, have been mentioned as per the university
requirements. 5. I have
not allowed and will not allow anyone to copy my work to pass it off as his/her work.
6. I have not copied anyone’s work or assignment, nor will I do it in the
upcoming future.

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 TABLE OF CONTENT

1. Abstract ……………………………………..PAGE NO 5.

2. Introduction …………………………………PAGE NO 6 .

3. Definition in the Indian Contract Act, 1872. 4..PAGE NO 7

4. Essentials……………………………………..PAGE NO 8

5. Comparison Between Different Countries 7…..PAGE NO 11

6. Recent Case Laws ……………………………..PAGE NO 13

7. Conclusion …………………………………….PAGE NO 14

8. References………………………………………PAGE NO 16

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1. Abstract
A asks B to buy his car for Rs. 2, 00,000, this is a proposal made by A to B which when accepted
by B becomes a promise. This promise is called an agreement which is established between A and
B which when comprises of a lawful consideration, between two parties who are competent to
contract and thus their consents are free for a lawful object and therefore is enforceable by law
becomes a contract. This paper talks about one of the essentials of forming a contract given in
Sec.10 of the Indian Contract Act, 1872, i.e., free consent. The introductory part of this paper
briefly explains the meaning of Agreement, Contract and Promise. Further, this paper explains how
the consent can be free. For consent to be free, it is important that it is not caused by coercion,
undue influence, fraud, misrepresentation and mistake. Thirdly, this paper provides certain
provisions which make the existence of these elements unlawful and then certain exceptions that do
not recognise these elements as unlawful. It essentially covers the field of mere silence. In case of
fraud, mere silence does not amount to fraud unless there is a duty to speak on the part of the party
or his silence itself amounts to speech. Moreover, this paper provides the provisions related to
different countries on how mere silence amounts to fraud and the recent case laws dealing with
fraud.

2. Introduction
Sec 2(h) of the Indian Contract Act, of 1872 defines contract as,

“Any agreement enforceable by law”. Thus, for the formation of a contract there must be –

• An agreement

• The agreement should be enforceable by law

AGREEMENT + ENFORCEABLE BY LAW = CONTRACT
Agreement: Agreement is defined in Sec. 2 (d) of Indian Contract Act, 1872 as, “Every
promise and every set of promises forming the consideration for each other”
Promise: Sec. 2 (e) defines promise as, “An accepted proposal”
Thus, a contract is an agreement; an agreement is a promise and a promise is an accepted
proposal.

Contract
Enforceable by law
Agreement
Promise

Accepted proposal 3
An agreement is regarded as a contract when it is enforceable by law. The conditions of
enforceability are stated in Sec.10. According to this section, an agreement is a contract when it is
made for some consideration, between parties who are competent with their free consent and for a
lawful object.

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Every contract is an agreement but every agreement is not a contract. An agreement becomes a
contract when the following conditions are satisfied:-

• There is some consideration for it [ Sec. 2(d) ]

• The parties are competent to contract [ Sec. 11&12]

• Their consent is free [Sec. 13-22]

• Their object is lawful [Sec. 23-30]

Free Consent:
According to Sec. 10 free consent is an essential requirement of a contract. Sec. 14 defines
free consent as Consent that is said to be free when it is not caused by,

• Coercion, as defined in Sec 15

• Undue Influence, as defined in Sec. 16

• Fraud, as defined in Sec. 17

• Misrepresentation, as defined in Sec. 18

• Mistake, subject to the provisions of Sec. 20, 21 and 22.

Consent is said to be caused when it would not have been given for but for the existence of
such coercion, undue influence, fraud, misrepresentation or mistake.
Fraud (Sec. 17):
Fraud is nothing but a misrepresentation of facts with the intent to deceive a contracting
party. Mere silence does not amount to fraud unless there is a duty to speak on the part of the
promisee or the promisor or unless his silence is, in itself, equivalent to speech.

•
3. Definition in Indian Contract Act, 1972 Intentional Misrepresentation of facts,
speaking broadly is called “fraud”.
According to Sec. 17: “FRAUD” means and includes any of the following acts committed
by a party to a contract, or with his connivance, 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;

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 • 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. Illustrations

• A sells, by auction, to B a horse which A knows to be unsound. A says nothing to B about

this unsoundness. This is not fraud.

• 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.

• 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.

• 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.
4. Essentials

Assertion of facts without belief in truth: In English Law fraud was defined in the well-
1
known decision of the House of Lords in Derry v. Peek , that “Fraud is proved when it shows that
a false representation has been made,

Knowingly, or
Without belief in its truth, or
Recklessly careless whether it be true or false.”

A person making a false representation is not guilty of fraud if he honestly believes in its truth. Thus
intentional misrepresentation is of the essence of fraud. The first three clauses of Sec. 17 deal with
this kind of fraud.

Active concealment: Active concealment is something different from mere passive concealment.
Passive concealment means mere silence as to material facts. Active concealment of a material fact
is a fraud; mere silence, excepting the few cases noted, does not amount to fraud.

Promise made without the intention of performing: To tie up a person to a promise with no
intention of performing from one’s side and with the intention of only preventing the other from
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dealing with others, is an example of a promise made without the intention of performing it. This is
the third type of fraud included in the definition in Sec. 17. A purchase of goods without any
intention of paying the price is a fraud of this species.

Any other act fitted to deceive: The fourth kind of fraud defined under Sec. 17 is any act which is
fitted to deceive. Fraud has been defined in Section 17 of the Indian Contract Act, of 1872. As per
the interpretation of the statute, two kinds of fraud are mentioned, (i) actual or positive fraud which
includes cases of intentional and successful employment of any cunning, deception, or artifice, used
to circumvent, cheat or deceive another; (ii) constructive or legal fraud not originating in any actual
evil design or contrivance to perpetrate a fraud yet, by their

1 (1889) 14 AC 337.

tendency to deceive or mislead others, or to violate private or public confidence, are prohibited by
law.

Any act of omission specially declares to be fraudulent: The last category includes cases in
which the law specially declares an act or omission to be fraudulent.

Mere Silence Does Not Amount To Fraud

False impression is ordinarily conveyed by deliberate misstatement of facts. But it may also be done
by active concealment of material facts. Ordinarily, mere silence is no fraud, even if its result is to
conceal “facts likely to affect the willingness of a person to enter into contract”. A contracting party
is under no obligation to disclose the whole truth to the other party or to give to him the whole
information in his possession affecting the subject matter of the contract.

Examples:

• A trader may keep silent about a change in prices.

• A seller who puts forth and unsound horse for sale, but says nothing about its quality,
commits no fraud.

• Ina case before the Supreme Court, a candidate, who had full knowledge of the fact that
he was short of attendance, did not mention this fact in his examination form. This was held
to be no fraud.
When Silence is Fraud

i. Duty to speak (contracts ubberima fides)

The first such case is when the person keeping silence has a duty to speak. Duty to speak arises
when one contracting party reposes trust and confidence in the other. A, a father, for example,

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selling a horse to his son must tell him if the horse is of unsound mind, as son is likely to rely upon
his father.

The duty to disclose the truth will arise in all cases where one party reposes, and the other accepts,
confidence. Duty to speak also arises where one of the parties is utterly without any means of
discovering the truth and has to depend upon the good sense of the other party.

An insurance company, for example, knows nothing about the life or the circumstances of the
assured. It has to depend upon the disclosures made by the assured. It is, therefore, the duty of the
assured to put the insurer in possession of all the material facts affecting the risks covered.

2
In Haji Ahmad Yarkhan v. Abdul Ghani Khan , the plaintiff spent a lot of money to mark the
engagement of his son but later the girl was discovered to be suffering from epileptic fits and so the
engagement was broken. He died the defendants for the compensation for the loss that he suffered
because of their concealment of this vital fact. The court relied upon the decision in the case of
3
“Nocton v. Lord Ashburton ” where it was pointed out that mere passive non disclosure

2 AIR 1937 Nag 270.

3 (1914) AC 932 (HL).

of a fact does not amounts to fraud no matter how deceptive it may be, unless there is a duty to
speak.

ii. Where silence is deceptive

Silence is sometimes itself equivalent to speech. A person, who keeps silent, knowing that his
silence is going to be deceptive, is no less guilty of fraud. Where, for example, the buyer knows
more about the value of the property, which is the subject of ale, but prefers to keep the information
from the seller, the latter may void the sale.

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.

iii. Change in circumstances

Sometimes a representation is true when made, but it may on account of a change of circumstances,
become false when it is actually acted upon by the other party. In such cases, it is the duty of the
person who made the representation to communicate the change of circumstances.

A company’s prospectus represented that certain persons would be the directors of the company.
This was true. But before the allotment took place, there were changes in the directorate, some
directors having retired. This was held to be sufficient to entitle an allottee to avoid the allotment.

iv. Half truths

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Even when a person is under no duty to disclose a fact, he may become guilty of fraud by non-
disclosure if he voluntarily discloses something and then stops halfway. A person may keep silence,
but if he speaks, a duty arises to disclose the whole truth.

5.1

The plaintiff purchases a land from the defendant who informs him that the Borough may open two
streets within the area. But as a matter of fact the Borough has a right to open three streets in that
area. It was held that the defendant was under no obligation to tell that the streets are to be opened
but if he did he cannot tell the half truth.

5.2 Fraud Act offences

the main fraud offences are contained in the Fraud Act

2006 (Fraud Act) and the Theft Act 1968 (Theft Act). Additional offences exist in specific

statutes such as companies and tax legislation.

The Fraud Act contains three main fraud offences:

Fraud by false representation4. A representation may be express or

implied. It is false if it is untrue or misleading and the person making it
knows that this is, or might be, the case.
Fraud by failing to disclose information where there is a legal duty to
disclose it5.
Fraud by abuse of position6. Abuse of position applies where a person
occupies
Commonatoposition
all threeinFraud
whichAct
he offences
is expected to safeguard,
is the requirementorthat
not the
to act
person
act dishonestly, intending to make a gain for himself or another or to
cause loss to another (or expose another to a risk of loss).
4 The Fraud Act, 2006, s. 2. 5 The Fraud Act, 2006, s.3. 6 The Fraud Act, 2006, s.4.

The Fraud Act contains additional offences relating to the possession, manufacture or supply of
7 8
articles for use in frauds and obtaining services dishonestly .

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6. Recent Case Laws
6.1 Prachi v. Shailendra Kr.
The plaintiff pleaded that the marriage of the plaintiff and the defendant was solemnized by fraud
committed by the parents of the defendant (Prachi Kr.). It was argued that defendant is unable to do
the work of the household. The plaintiff pleaded that the fact that defendant cannot hear without a
hearing aid was concealed by her parents and was not revealed before marriage or even at the time
of marriage. The plaintiff demanded the nullity of the marriage on the ground of fraud committed
by the parents of the defendant.

The High Court of Allahabad held that it was the duty of the parents to disclose these facts to the
other party and hence the marriage was solemnised on the basis of fraud.

6.2 Parsvnath Developers Limited v. Kiran Industries & Investment Company and
Another Defendants10
The plaintiff had a business of making society, housing and residential areas. The plaintiff entered
into an agreement with the representative of the defendant to buy to buy a land which was free of
any interference by any authority and solely belonged to the defendant itself. The plaintiff’s
attorney and the defendant’s representative signed a MoU in which it was stated that the defendant
will provide all the documents of the land to the plaintiff. The MoU included the terms that the
plaintiff will be provided with the ownership and a clear marketable title qua of the subject land.
The defendants failed to do so by concealing and misrepresenting facts relating to their land.

It was held that, the defendants were guilty of fraud. The consent of the plaintiff was thus not taken
freely as it was obtained by falsehood and silence on the part of the defendant which constituted
fraud.

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7. Conclusion
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 the regard being bad to them it is the duty of
the person keeping silence to speak, or unless silence is equivalent to speech. In certain contracts,
the law requires the parties to make fullest disclosure of material facts. Failure to disclosure of such
facts would make the contract void or voidable as the case may be. Such contracts are called
Uberrimae fidei, i.e., contracts requiring utmost good faith. In such contracts, party having any
information regarding the subject matter which is likely to affect the willingness of another party to
enter into transactions is bound to disclose the information.

7 The Fraud Act, 2006, ss. 6, 7.

8 The Fraud Act, 2006, s. 11.
9 Delivered on September 13, 2019 at Allahabad High Court. 10 Delivered on May 06, 2019 at
Delhi High Court.

I. Primary Sources: Statutes

8. REFERENCES

• The Indian Contract Act, 1872.

• The Fraud Act, 2006.

• The Theft Act, 1968.

II. Secondary Sources: Books

• th
R.K. Bangia, Law of Contract Part I, 6 Edn, Allahabad Law Agency (Faridabad),
2009.

• th
Avtar Singh, Contract & Specific Relief, 10 Edn., Eastern Book Company (Lucknow),
2008.
Webliography

• www.legalcrystal.com

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• www.indiankanoon.com

• www.casemine.com

• www.legitquest.com

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