Supreme Court on Fraud and Deceit – Judgments

Landmark judgments of Supreme Court on Fraud /Deceit. How fraud vitiates justice. Inherent power of Court to recall order obtained by fraud.

1. Introduction

What constitutes fraud? When is fraud said to be committed? How do Courts decide on fraudulent cases? How is justice vitiated by fraud? Verdict of Supreme Court on fraud? … You would find answers to these and more such questions here.

Relevant extracts from a few landmark judgments of Supreme Court, giving valuable insights on the element of fraud, are enumerated below:

  • Fraud: Definition
  • An intention to deceive
  • Fraud and deception are synonymous
  • Judgment or decree obtained by fraud is a nullity
  • Fraud and justice never dwell together
  • Court has inherent power to recall an Order obtained by fraud
  • Courts impose appropriate cost
Supreme Court Judgments on Fraud and Deceit - a compilation of key judgments of the Apex Court.
Order obtained by fraud is Nullity and the Court can recall the Order : Supreme Court

2. Fraud – definition: It is a concept descriptive of human conduct, an act of trickery or deceit

In Webster’s Third New International Dictionary –

“Fraud” in equity has been defined as an act or omission to act or concealment by which one person obtains an advantage against conscience over another or which equity or public policy forbids as being prejudicial to another.

In Black’s Legal Dictionary –

“Fraud” is defined as an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or surrender a legal right; a false representation of a matter of fact whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.

In Concise Oxford Dictionary –

It has been defined as criminal deception, use of false representation to gain unjust advantage; dishonest artifice or trick.

In Story’s Equity Jurisprudence, 14th Edition, Vol.1 –

Fraud indeed, in the sense of a Court of Equity, properly includes all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence, justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another.

According to Halsbury’s Laws of England –

A representation is deemed to have been false, and therefore a misrepresentation, if it was at the material date false in substance and in fact.

Section 17 of the Indian Contract Act, 1872 –

It defines “fraud” as an act committed by a party to a contract with intent to deceive another.

In Derry and Ors. v. Peek (1886-90) All ER 1 –

Fraud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false”. But “fraud” in public law is not the same as “fraud” in private law. Nor can the ingredients, which establish “fraud” in commercial transaction, be of assistance in determining fraud in Administrative Law.

In Shrisht Dhawan v. Shaw Bros., (1992) 1 SCC 534, the Supreme Court observed (SCC p. “ 553, para 20) –

“Fraud” and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It is a concept descriptive of human conduct.

Fraud and justice never dwell together.

3. An intention to deceive: Supreme Court on Fraud

In Vimla (Dr.) vs. Delhi Administration, AIR 1963 Sc 1572; and Indian Bank vs. Satyam Fibres (India) (P) Ltd., (1996) 5 SCC 550 the Supreme Court said:

“Fraud” means an intention to deceive; whether it is from any expectation of advantage to the party himself or from ill will towards the other is immaterial. The expression “fraud” involves two element, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable, or of money and it will include any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always cause loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage to the deceiver, but no corresponding loss to the deceived, the second condition is satisfied.

4. Fraud and Deception are synonymous

In Ram Chandra Singh vs. Savitri Devi, (2003) 8 SCC 319 the Apex Court observed:

A fraudulent misrepresentation is called deceit and consists in leading a man into damage by willfully or recklessly causing him to believe and act on falsehood. It is a fraud in law if a party makes representation, which he knows to be false, and injury ensures therefrom although the motive from which the representation proceeded may not have been bad. An act of fraud on Court is always viewed seriously. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res-judicata.

5. Judgment obtained by fraud is nullity: Supreme Court on fraud

In S.P. Chengalvaraya Naidu (dead) by LRs Jagannath (dead) by LRs and Ors. AIR 1994 SC 853, the Apex Court commenced the verdict with the following words:

The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, who’s case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation. A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get an advantage. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party.

6. Fraud and justice never dwell together

In United India Insurance Co. Ltd. Vs. Rajendra Singh & Ors., (2000) 3 SCC 581, the Apex Court observed –

Fraud and justice never dwell together.(Frans et jus nunquam cohabitant) is a pristine maxim which has never lost its temper over all these centuries. Lord Denning observed in a language without equivocation that no judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained by fraud, for, fraud unravels everything( (Lazarus Estate Ltd. Vs. Beasley 1956(1) QB 702.)

7. Court has inherent power to recall an Order obtained by fraud

In Indian Bank Vs. Satyam fibres (India) Pvt. Ltd. {1996 (5) SCC 550} the Supreme Court said –

Since fraud affects the solemnity, regularity and orderliness of the proceedings of the Court and also amounts to an abuse of the process of Court, the Courts have been held to have inherent power to set aside an order obtained by fraud practised upon that Court. Similarly, where the Court is misled by a party or the Court itself commits a mistake which prejudices a party, the Court has the inherent power to recall its order. No court or tribunal can be regarded as powerless to recall its own order if it is convinced that the order was wangled through fraud or misrepresentation of such a dimension as would affect the very basis of the claim.

8. Court should impose appropriate cost

In A. Shanmugam v. Ariya Kshatriya Rajakula Vamsathu Madalaya Nandhavana Paripalanai Sangam (2012) 6 SCC 430 the Supreme Court observed –

Once the court discovers falsehood, concealment, distortion, obstruction or confusion in pleadings and documents, the court should in addition to full restitution impose appropriate costs. The court must ensure that there is no incentive for wrongdoer in the temple of justice. Truth is the foundation of justice and it has to be the common endeavour of all to uphold the truth and no one should be permitted to pollute the stream of justice. It is the bounden obligation of the court to neutralise any unjust and/or undeserved benefit or advantage obtained by abusing the judicial process.

Supreme Court in the case of V. Chandrashekaran and another vs. Administrative Officer and others [(2012) 12 SCC 133 observed –

The judicial process cannot become an instrument of oppression or abuse, or a means in the process of the court to subvert justice, for the reason that the court exercises its jurisdiction, only in furtherance of justice. The interests of justice and public interest coalesce, and therefore, they are very often one and the same. A petition or an affidavit containing a misleading and/or an inaccurate statement, only to achieve an ulterior purpose, amounts to an abuse of process of the court.

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