Fraud

In one line

Fraud is a lie, or something as good as a lie, told to a contracting party in order to get them to contract, by someone who knows it is not true.

In the words a student can write in an exam: section 17 of the Indian Contract Act 1872 provides that "'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", and then lists five acts. The Explanation provides that 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 it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

Why the law has this at all

Every contract rests on information, and the parties rarely have the same information. The seller of a machine knows things the buyer cannot discover. The law has to decide how much of that imbalance it will tolerate.

Its answer is neither of the two simple ones. It does not require each party to tell the other everything they know, which would make ordinary trade impossible and would destroy the value of doing your own research. Nor does it let a party say anything at all.

The line it draws is deliberate untruth. You need not speak, but if you speak you must not lie; and you must not do things designed to stop the other side finding out. That is why the Explanation begins by saying silence is not fraud, and then carves out the two cases where silence becomes as culpable as speech.

The provision itself

"'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.

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 speak, or unless his silence is, in itself, equivalent to speech."