| Introduction | | | | (2) the active concealment of a fact by one |
| The importance of the term 'misrepresentation' | | | | having knowledge or belief of the fact; |
| can be inferred from the fact that "free consent" | | | | (3) a promise made without any intention of |
| which is inevitable for an agreement to be | | | | performing it; |
| enforceable under Section 14 of Indian Contract | | | | (4) any other act fitted to deceive; |
| Act, 1872 is rendered negative if | | | | (5) any such act or omission as the law specially |
| misrepresentation is proved. In other words, | | | | declares to be fraudulent. |
| misrepresentation to any party in a contract so | | | | Explanation: Mere silence as to facts likely to |
| as to induce them for consent renders the | | | | affect the willingness of a person to enter into a |
| contract void. | | | | contract is not fraud, unless the circumstances of |
| Section 18 of the Indian Contract Act, 1872 (the | | | | the case are such that, regard being had to them, |
| "Contract Act") defines misrepresentation. This | | | | it is the duty of the person keeping silence to |
| section is quoted below: | | | | speak, or unless his silence is, in itself, equivalent |
| "Misrepresentation" means and includes - | | | | to speech. |
| (1) the positive assertion, in a manner not | | | | Illustration |
| warranted by the information of the person | | | | (a) A sells, by auction, to B, a horse which A |
| making it, of that which is not true, though he | | | | knows to be unsound. A says nothing to B about |
| believes it to be true; | | | | the horse's unsoundness. This is not fraud in A. |
| (2) any breach of duty which, without an intent to | | | | Distinction:- |
| deceive, gains an advantage to the person | | | | As we can infer from the Indian Contract Act, |
| committing it, or any one claiming under him, by | | | | misrepresentation is an innocent act of deceit |
| misleading another to his prejudice, or to the | | | | whereas fraud inevitably includes the intention to |
| prejudice of any one claiming under him; | | | | deceive. As the deception is deliberate, the |
| (3) causing, however innocently, a party to an | | | | contract becomes void after fraud is proved |
| agreement, to make a mistake as to the | | | | whereas in case of misrepresentation the |
| substance of the thing which is the subject of the | | | | contract is voidable at the option of the party |
| agreement." | | | | deceived. However, both are forms of undue |
| With regard to contract, the general principal is | | | | influence as per Section 16 of Indian Contract Act. |
| that if one party has induced the other to enter | | | | Bellachi (Dead) by LR Vs. Pakeeran JT 2009(4) SC |
| into a contract by misrepresentation, though | | | | 298 |
| innocently of any material fact specially within his | | | | Subject matter of the suit was a deed of sale |
| own knowledge, the party misled can avoid the | | | | dated 7th October, 1999 executed by the |
| contract. The party who was induced by | | | | petitioner in favour of the respondent. The |
| misrepresentation to enter into a contract, has | | | | amount of consideration was shown therein to be |
| two remedies open to him; (i) to elect to rescind | | | | a sum of Rs. 20,000/.Contention of the appellant |
| the contract, or (ii) to seek enforcement of | | | | in the said suit was that the said deed of sale is |
| representation and insist upon being placed in the | | | | vitiated by misrepresentation, undue influence, |
| same position as if the contract was performed | | | | fraud and collusion as she was made to believe |
| by claiming damages." | | | | that she would obtain financial assistance by |
| Under Section 19 of the Contract Act, the right | | | | executing the said document. According to her, |
| of rescission is available where consent is caused | | | | she had reposed complete faith and trust in her |
| by misrepresentation. | | | | brother who used to visit her place often. The |
| Section 19 of the Contract Act provides for | | | | law does not envisage raising of a presumption in |
| voidability of agreements without free consent. | | | | favour of undue influence. A party alleging the |
| This section is quoted below: | | | | same must prove the same subject of course to |
| "When consent to an agreement is caused by | | | | just exceptions. Hence, the plaint was dismissed. |
| coercion, fraud or misrepresentation, the | | | | State of Karnataka and Anr. Vs. All India |
| agreement is a contract voidable at the option of | | | | Manufaturers Organization and Ors. AIR 2006 SC |
| the party whose consent was so caused. | | | | 1846 |
| A party to a contract, whose consent was | | | | State of Karnataka decided to take up |
| caused by fraud or misrepresentation, may, if he | | | | "Bangalore-Mysore Infrastructure Corridor Project" |
| thinks fit, insist that the contract shall be | | | | with a consortium. For the very same, |
| performed, and that he shall be put in the position | | | | Memorandum of understanding (MOU) was |
| in which he would have been if the | | | | entered into between the petitioner and a |
| representations made had been true. | | | | consortium of companies.Government order (GO) |
| Exception: If such consent was caused by | | | | was also passed. Members of consortium entered |
| misrepresentation or by silence, fraudulent within | | | | into an agreement for assigning their respective |
| the meaning of section 17, the contract, | | | | rights under the GO and MOU in favour of Nandi |
| nevertheless, is not voidable, if the party whose | | | | Infrastructure Corridor Enterprises Ltd. Nandi |
| consent was so caused had the means of | | | | submitted a framework agreement (FWA) which |
| discovering the truth with ordinary diligence. | | | | was approved by the petitioner.One of the key |
| Explanation: A fraud or misrepresentation which | | | | obligations of petitioner under FWA was to make |
| did not cause the consent to a contract of the | | | | land available.Karnataka Industrial Areas |
| party on whom such fraud was practiced, or to | | | | Development Board entered into an agreement |
| whom such misrepresentation was made, does | | | | with Nandi for acquisition of private land. |
| not render a contract voidable." | | | | Henceforth, notifications were issued.FWA was |
| Illustration: | | | | challenged in public interest writ petition. The |
| A, by a misrepresentation, leads B erroneously to | | | | petitioner took the plea that they had given their |
| believe that five hundred mounds of indigo are | | | | consent due to misrepresentation by Nandi. The |
| made annually at A's factory. B examines the | | | | inference drawn by the High Court was that the |
| accounts of the factory, which show that only | | | | plea of fraud and misrepresentation sought to be |
| four hundred mounds of indigo have been made. | | | | raised was not only an afterthought but also false |
| After this B buys the factory. The contract is not | | | | to the knowledge of the State Government. The |
| voidable on account of A's misrepresentation | | | | High Court, therefore, observed (vide Paragraph |
| because of lack of 'due diligence'. | | | | 27): "It is unfortunate that the petitioners and the |
| Section 19A of Indian Contract Act, 1872 states | | | | State Government have chosen to raise this |
| that:- | | | | bogie (sic- bogey) to defeat the public project |
| "When consent to an agreement is caused by | | | | subserving public interest. On appeal, Supreme |
| undue influence, the agreement is a contract | | | | Court upheld the view of High Court regarding the |
| voidable at the option of the party whose | | | | plea of misrepresentation. |
| consent was so caused. Any such contract may | | | | Union of India and Ors. Vs. R.P. Yadav AIR 2000 |
| be set aside absolutely or, if the party who was | | | | SC 2252 |
| entitled to avoid it has received any benefit | | | | A contract had been entered between Indian |
| thereunder, upon such terms and conditions as to | | | | navy and artificial apprentice. The question dealt |
| the Court may seem just". | | | | with was whether artificer apprentice of Indian |
| A Comparative Study of Correlation Between | | | | Navy who had been given re-engagement for |
| Misrepresentation and Sale Of Goods | | | | certain period after obtaining his consent for it |
| Section 3 of the Sale of Goods Act states that: | | | | entitled to withdraw consent and demand his |
| "The unrepealed provisions of the Contract Act | | | | release from force as of right. It is the case of |
| save in so far as they are inconsistent with the | | | | respondant in his writ petition that he agreed to |
| express provisions of the Sale of Goods Act, shall | | | | be reengaged was based on the |
| continue to apply to contracts for the sale of | | | | misrepresentation on the part of the appellants to |
| goods". | | | | him that he had only completed 11 years of |
| Section 12 of the Sale of Goods Act, 1930 | | | | pensionable service and that he required another |
| provides the difference between 'condition' and | | | | four years to earn the pension. As such, it was |
| 'warranty' and read as follows:- | | | | contended he had a right to rescind the contract |
| "12. Condition and warranty, - (1) A stipulation in a | | | | under Section 19 of the Contract Act. The |
| contract of sale with reference to goods which | | | | appellants by sending Raj Kumar the "Expiry of |
| are the subject thereof may be a condition or a | | | | Engagement Serial" expressly represented to him |
| warranty. | | | | that he had put in only 11 years of pensionable |
| (2) A condition is a stipulation essential to the main | | | | service and that he should apply for extension for |
| purpose of the contract, the breach of which | | | | four years to qualify for pension. Therefore, the |
| gives rise to a right to treat the contract as | | | | court held that the consent of artificial apprentice |
| repudiated. | | | | was obtained through misrepresentation. |
| (3) A warranty is a stipulation collateral to the | | | | Sri Tarsem Singh Vs. Sukhminder Singh AIR 1998 |
| main purpose of the contract, the breach of | | | | SC 1400 |
| which gives rise to a claim for damages but not | | | | Parties entered into a contract for sale of certain |
| to a right to reject the goods and treat the | | | | land and certain amount was paid to petitioner as |
| contract as repudiated. | | | | earnest money. Suit for specific performance filed |
| (4) Whether a stipulation in a contract of sale is a | | | | when petitioner did not execute sale deed and |
| condition or a warranty depends in each case on | | | | decreed by Trial Court. In appeal Additional District |
| the construction of the contract. A stipulation may | | | | Judge observed that both parties suffered from |
| be a condition, though called a warranty in the | | | | mistake of fact as to area of land and sale. |
| contract". | | | | Consideration was already paid by the respondent. |
| Further, Section 13 of the Sale of Goods Act, | | | | Decree for specific performance was not passed |
| 1930 provides when 'condition' to be treated as | | | | but decree for refund of earnest money was |
| `warranty', relevant part of sub-section (1) & (2) | | | | passed which was confirmed by High Court and |
| thereof reads as under:- | | | | Supreme Court. The Supreme Court upheld that |
| "13. When condition to be treated as warranty. - | | | | the respondent was subjected to |
| (1) Where a contract of sale is subject to any | | | | misrepresentation by the petitioner as the latter |
| condition to be fulfilled by the seller, the buyer | | | | made a false promise to sell the disputed |
| may waive the condition or elect to treat the | | | | property. |
| breach of the condition as a breach of warranty | | | | M/s. Arosan Enetrprises Ltd. Vs. Union of India & |
| and not as a ground for treating the contract as | | | | Anr. AIR 1999 SC 3804 |
| repudiated. | | | | The factual score depicts that on 24th October, |
| (2) Where a contract of sale is not severable and | | | | 1989, the appellant furnished a performance bank |
| the buyer has accepted the goods or part | | | | guarantee for $ 29,28,000 and upon bank |
| thereof, the breach of any condition to be fulfilled | | | | guarantee being furnished, the Government of |
| by the seller can only be treated as a breach of | | | | India assigned the contract to the Food |
| warranty and not as a ground for rejecting the | | | | Corporation of India (FCI) under Clause 20 of the |
| goods and treating the contract rejecting the | | | | Agreement. FCI also in its turn opened a Letter of |
| goods and treating the contract as repudiated, | | | | Credit for the full value of the contract though, |
| unless there is a term of the contract, express or | | | | however, as the records depict that while on 26th |
| implied, to that effect." | | | | October, 1989, the Letter of Credit was opened |
| Distinction Between Misrepresentation and Fraud: | | | | by FCI but its authentication was not effected |
| Clearing the Imbroglio | | | | within the delivery date i.e. 31st October, 1989. |
| Definition of Fraud as per Indian Contract Act, | | | | Point to be noted is that the Bank, can not, by |
| 1872: | | | | merely stating that there was non-supply of |
| Section 17:- "Fraud" means and includes any of | | | | goods by the appellant, use the words "fraud or |
| the following acts committed by a party to a | | | | misrepresentation" for purposes of coming under |
| contract, or with his connivance, or by his agent, | | | | the exception. The dispute as to non-supply of |
| with intent to deceive another party thereto or | | | | goods was a matter between the seller and |
| his agent, or to induce him to enter into the | | | | buyer and did not, as stated in the above |
| contract: | | | | decision, provide any cause of action for the Bank |
| (1) the suggestion, as a fact, of that which is not | | | | against the seller. |
| true by one who does not believe it to be true; | | | | |