Criminal Fraud Vs Civil Fraud

KEY TAKEAWAYS

• Fraud is a purposeful act of deception with the intent of obtaining something by taking unfair advantage of someone else. It's a gain of profit from someone else's loss.
• Under Section 17 of the Indian Contract Act, 1872, fraud is defined as any act committed by a contracting party, or with his knowledge or consent, or by his agents, with the intent to deceive another party or his agent, or to induce him to enter into a contract.
• The following sections of the IPC deal with the consequences of fraud: 421, 422, 423, and 424.
• Although the Indian Penal Code does not define fraud, it can be identified and understood in Section 421-424 of the IPC.

INTRODUCTION

Fraud is a purposeful act of deception with the intent of obtaining something by taking unfair advantage of someone else. It's a gain of profit from someone else's loss.

The following sections of the IPC deal with the consequences of fraud: 421, 422, 423, and 424.

• Removal or hiding of property for the purpose of preventing its distribution among creditors.
• Fraudulently prohibiting creditors from accessing debt.
• Execution of a fraudulent deed of transfer with a false statement of consideration.
• Property that has been fraudulently removed or hidden.

CIVIL FRAUD

Under Section 17 of the Indian Contract Act, 1872, fraud is defined as any act committed by a contracting party, or with his knowledge or consent, or by his agents, with the intent to deceive another party or his agent, or to induce him to enter into a contract.

Silence is not fraud unless there is a legal obligation to communicate or if it is equivalent to speaking. Fraud not only makes a contract voidable at the discretion of the person whose agreement was obtained, but it also makes it possible to sue for damages.

Individuals who have been harmed by the preparators initiate a civil fraud complaint in a civil court with the goal of receiving compensation and damages.Rather than convicting the perpetrator, one must prove the plaintiff's injury in a civil complaint.

In a civil dispute, it is not essential to commit fraud; simply injuring the plaintiff makes the other party accountable.

In a civil lawsuit, the plaintiff must prove the injury on the "balance of probabilities," but the prosecution must prove these facts are true and the fraud was committed beyond a reasonable doubt in a criminal fraud case.

The burden of proof is borne by a different party, which can make determining culpability in civil proceedings and guilt in criminal cases a difficult task. It is impossible to establish tangible proof in a civil case.

As a result, it is fruitful if the evidence provided leads to the conclusion that fraud has occurred.

In a civil action, the defendant must place the plaintiff in the same circumstances as she was before the deception. As a result, he may be required to pay punitive damages in addition to further compensation based on excessive pain and suffering.

CRIMINAL FRAUD

Criminal fraud occurs when someone, particularly information, is used to perpetuate a crime, which frequently involves the theft of money or data.

This can be accomplished by stealing someone's identity and exploiting it for illicit work or even performing horrible crimes.

In a criminal fraud case, on the other hand, a law enforcement agency files a case in criminal court against the perpetrator with the goal of enacting justice.

Although the Indian Penal Code does not define fraud, it can be identified and understood in Section 421-424 of the IPC.

The term "fraudulently" is defined under Section 25. It states that a person commits fraud if he does anything with the aim to defraud but not otherwise.

Section 421 of the IPC deals with fraud committed as a result of insolvency. It's a reprimandable offence that includes Benami transactions.

Furthermore, under Section 422, any person who is capable of repaying a loan but fails to do so is guilty of fraudulent debt prevention. Fraudulent execution of a deed with a recital as to consideration or beneficiary's name is dealt with under Section 423.

Section 424, on the other hand, deals with the fraudulent removal or concealing of property. All of these offences are punishable by up to two years in prison, a fine, or both.

In criminal fraud, on the other hand, a law enforcement agency files a case in criminal court against the perpetrator with the goal of enacting justice.

The burden of proof is borne by a different party, which can make determining culpability in civil proceedings and guilt in criminal cases a difficult task. It is impossible to establish tangible proof in a civil case. As a result, it is fruitful if the evidence leads to the conclusion that fraud has occurred.

In a criminal prosecution, restitution, or the repayment of stolen funds from the victim, is required.

CASE LAWS

In the well-known House of Lord’s judgment in Derry v. Peek (1889) LR 14 AC 337 at p. 374, Lord Herschell stated: "Fraud is proved when it is demonstrated that a false representation has been made: Knowingly, or Without conviction in its veracity, or Recklessly uncaring whether it be true or false."

The Supreme Court clarified in Avital Post Studioz Limited &Ords v HSBC PI Holdings (Mauritius) Limited ("Avitel") 2020 SCC OnLine SC 656, that only "severe allegations of fraud" would take a dispute out of an arbitration clause's scope. An otherwise arbitrable case would not become non-arbitrable because the same set of facts gives rise to concurrent civil and criminal culpability.

This decision is noteworthy because it maintains the parties' contractual bargain and precludes a respondent from sabotaging an arbitration agreement (and consequent award) simply by bringing up a fraud as a point of contention.

In Haji Ahmad Yar khan v. Abdul Gani Khan AIR 1937 Nag 270., the plaintiff paid money to commemorate his son's engagement. He soon discovered that the girl had epileptic seizures, and the engagement was called off. He sued the other party to recover damages for the loss he had suffered as a result of their willful concealment of a crucial fact, which amounted to fraud.

The court cited the House of Lords’ decision in Nocton v Lord Ashburton(1914) AC 932 (HL), which held that a passive non-disclosure of the facts, however misleading in actuality, does not constitute fraud unless there is a duty to speak. According to the facts, the law imposes no universal duty on anyone, including those seeking matrimony with them, to broadcast the defects of his female relations. The parties did not have a fiduciary relationship.

The contract was found to be voidable due to the misrepresentation, but the plaintiff was not entitled to receive compensation under Section 75 of the Contract Act.

In Kiran Bala Asthana vs. Bhaire Prasad Srivastava (AIR 1982 All 242), the plaintiff, Kiran Bala Asthana, sued the defendant, Bhaire Prasad Srivastava.

The appellant's first marriage, to Kiran Bala, had been annulled because she was of unsound mind at the time of the marriage. She was married for the second time to the respondent, Bhaire Prasad Srivastava. The fact that her first marriage had been annulled because she was an idiot was not revealed to the bridegroom by either the girl or her parents.

It was decided that the bridegroom was not responsible for discovering these facts, but that the girl or her parents were responsible for concealing them.

The bridegroom's consent was found to have been gained by deception, and the appellant's second marriage to the respondent was thus declared null and void by a decree under section 12(1) (c) of the Hindu Marriage Act.

In Janaki Amma v. Raveendra Menon AIR 1981 Ker 205, where the plaintiff was aware of the contents of her father's Will, the property partition upon the death of the father and mother was not set aside on the grounds of fraud for failing to disclose the contents of the Will, and no new partition was ordered.

Shri Krishnan vs. Kurukshetra University AIR 1976 SC 376: (1976) 1 SCC 311: 1976 (8) UJ 15 SC: Shri Krishnan, a candidate for the university's L.L.B. part 1 examination, did not complete the required number of lectures to be eligible to take the exam. He, on the other hand, filled out the examination form for the examination without stating his lack of attendance. By conducting a thorough investigation, the university officials may have found the truth.

The candidate's candidature was to be revoked by the university due to fraud. The candidate had simply kept silent about certain facts, and the university authorities could have found the truth, according to the ruling.

Queen-Empress V/s Soshi Bhushan ILR 15 All 210: In this case, the accused requested admission to Benaras University's LL.B. (Final) class, claiming that he had previously attended Lucknow Canning College's LL.B. (Previous) class. He was accepted and was asked to present a certificate as proof of passing the LL.B. (Previous) examination. He presented a forged certificate, and it was determined that he had committed fraud.

Krishan Kumar v/s. Union of India 1959 AIR 1390, 1960 SCR (1) 452: Wrongful gain involves wrongful retention, and wrongful loss includes being kept out of the property as well as being wrongfully deprived of property, according to the Court in this instance. As a result, once a specific item has been placed in the hands of a servant, he will be guilty of misappropriating the item in any condition that demonstrates a malevolent intent to deprive the master of it. The words 'fraudulently' and'dishonestly' are used together in various sections of the Indian Penal Code. Sections 209, 246, 247, 415, 421, 422, 423, 424, 464, 471, and 496 are the examples.

CONCLUSION

A company can conduct fraud in a number of ways, including manipulating accounts and fabricating false financial data. Because it produces vast numbers of jobs and money, business is vital to a country's economic success. Corporate fraud, on the other hand, will devastate the economy and frighten investors. In order to make ethical corporate production sustainable, there needs to be some legislation and obligations resulting from violations of this legislation.

In the case of an offence, it is controversial whether a fine or a jail fine should be imposed. According to the Law Commission's 47th report, judges should have the authority to intervene against corporate fraud and make their conclusions.

To learn the practical aspect of CrPC and CPC HERE and IPC HERE.