The Delhi High Court recently ruled that an agreement obtained through fraud can be voided by the deceived party, even if the deceived party could have discovered the truth through due diligence [Sangam (India) Ltd v The National Highway Authority of India & Anr].
A Division Bench comprising Justices Vibhu Bakhru and Tara Vitasta Ganju stated that ‘deliberate fraud’ falls outside the Exception to Section 19 of the Indian Contract Act, which addresses the voidability of agreements lacking free consent.
The Exception in question reads:
“If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.”
After reviewing precedents on the matter, the Court concluded:
“The essence of the aforementioned decisions is that instances of deliberate fraud do not fall within the purview of the Exception to Section 19 of the Contract Act. When an agreement is obtained through fraud, it remains voidable at the discretion of the deceived party, even if the party whose consent was influenced by fraudulent misrepresentation had the opportunity to uncover the truth through reasonable diligence.”
This ruling came during an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, filed by Sangam India Limited against the National Highways Authority of India (NHAI).
Previously, a single judge had overturned an arbitral award in favor of Sangam India, stating that the company could have discovered the truth about the unavailability of a stretch of the national highway for toll collection, a fact central to the contract with NHAI. The court ruled that the agreement was not voidable due to misrepresentation.
However, the Division Bench disagreed with the single judge’s conclusions, stating that, given the Exception to Section 19 of the Contract Act, there was no need to further adjudicate on the findings.
The Court referred the matter back to the single judge for fresh consideration.
Sangam India was represented by Senior Advocate Gaurav Pachnanda and Advocates Ruchira Gupta, Akanksha Sisodia, and Nikita Jaitly.
Advocates Ankur Chhibber, Anshuman Mehrotra, and Nikunj Mehrotra represented NHAI.
