Meaning and Definition of Fraud in Business Law

It is a willful misrepresentation with intent to deceive another person to believe that a thing is true which is untrue or false. It means fraud is misrepresentation with bad intention. It is made knowingly by a party to deceive another.

Fraud is a one of the factors which always hamper the free consent of contractual party. The Nepal Contract Act, Section 14.1(c) has made the definition of the term fraud. According to this section it includes following things under fraud if committed by a party to the contract or his agent with a view to deceiving another party or his agent.

Example, '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'.

In R.C. Thakkar v. Gujrat Housing Board, court held that a mere false statement is not fraud. Fraud is committed wherever one man causes another to act on a false belief by a representation, which he doesn't himself believe to be true.

• To induce a party to believe a false act as true one,
• To conceal (hide) actively any factual truth,
• To do any act by which the party believes false as true, and
• To do some such acts which are declared to be fraudulent by other Nepalese law.

According to section 17 of Indian Contract Act, 1872 defines that; fraud means acts committed by a party to a contract with intention to deceive another party or his agent or to induce him to enter into the contract with the active concealment of a fact by one having knowledge of belief of the fact.

Thus, where there is dishonesty, recklessness, bad intention to induce others to wrong way, to harm others and having self benefit are the distinct characteristics of fraud. It turns the contract to voidable class.

It is also a voidable contract. It may be void at the option of aggrieved party. The aggrieved party has right to take legal action to avoid the contract where his consent was obtained through fraud and the party has right to claim damages for his loses from the other party who commit fraud against him. The burden of proof in such case lies upon the aggrieved party it means who claims the fraud, he has to prove it.

Difference between the Fraud and Misrepresentation:

The term fraud and misrepresentation is similar in some respect except the intention to deceive other party. Some major differences between fraud and misrepresentation are as below: