Calcutta High Court: Mere Silence Not Fraud Unless Equated to Speech

In a recent judgment, the Calcutta High Court deliberated on the principle that mere silence of a party affecting the willingness of another to enter into a contract does not constitute fraud unless circumstances make it the duty of the silent party to speak or unless silence is equivalent to speech.

Case Overview: The petitioner sought an unconditional stay of an Arbitral Award, alleging fraud in the induction of the Arbitration Agreement. The respondent invoked arbitration proceedings after the petitioner terminated a Gas Supply and Purchase Agreement (GSPA). The Arbitral Tribunal ruled in favor of the respondent, prompting the petitioner’s plea for a stay.

Contentions: The petitioner argued that executing the GSPA violated court orders and was induced by fraud, alleging suppression of show-cause notices by the respondent. The respondent refuted these claims, asserting that there was no violation or fraud, as the relevant orders were public information.

Court’s Observations: The court framed two pivotal issues: whether there was restraint on the respondent to execute the agreement, and if so, whether the respondent suppressed PNGRB or Delhi High Court orders. It noted that while PNGRB directed a stoppage of incremental activity, it did not restrain gas supply. Additionally, the GSPA was executed during a stay on the PNGRB order, with no directive to cease supply.

The court referenced Section 17 of the Indian Contract Act, stating that for a contract to be voidable due to coercion, fraud, or misrepresentation, active concealment must be evident. It ruled that the petitioner’s argument lacked substance as there was no active concealment or fraudulent inducement.

Decision: Rejecting the plea for unconditional stay, the court directed the petitioner to secure Rs 70 crores, part of the awarded sum, for staying the award. The judgment underscores that unless silence is deemed equivalent to speech or a duty to speak exists, mere silence does not constitute fraud.

Conclusion: The judgment highlights the nuanced interpretation of fraud in contract law. It underscores the importance of active concealment or a duty to disclose for fraud to be established. By delineating the threshold for fraud, the court ensures fairness and clarity in contractual dealings.

Case Title: Janak Ram vs. The State

Coram: Hon’ble Mrs. Justice Moushumi Bhattacharya

Case No.: A.P.- COM 281 of 2024

Advocate for the Petitioner: Mr. Jishnu Saha, Mr. Sakya Sen, Mr. Arnab Das, Mr. Amritam Mandal, Ms. Akansha Yadav, Ms. Syeda Romana Sultan

Advocate for the Respondent: Mr. Ratnanko Banerji, Mr. Sarvapriya Mukherjee, Mr. Kanishk Kejriwal, Mr. Shounak Mitra, Mr. Kaushik Chakravortty