Fraud: Meaning and Definition

Fraud, usually, characterized as deceptive behaviour carried out by someone with the intent to gain an unfair advantage or violate the rights of another person (the victim). In this world, one is susceptible to fraud such as bankruptcy, credit card fraud, security fraud, and wire fraud. Fraudulent activity may be planned and carried out by a major organisation, a sizable or small group, or even just one individual.

Meaning of Fraud

Fraud is defined in law as the willful use of deception to obtain unfair or illegal gain or to deny a victim a legitimate right. Fraud can be a violation of civil law (a victim of fraud may sue the perpetrator to stop the fraud or recover financial compensation), criminal law (a perpetrator of fraud may face legal action and imprisonment from the government), or it may not result in the loss of any money, property, or legal rights but still be a component of another civil or criminal wrong. The goal of fraud may be financial gain or other benefits, such as getting a passport, travel document, or driver's license; or it may be mortgage fraud when the offender makes false claims in an effort to qualify for a mortgage.

Fraud as a Civil Wrong

Fraud is a tort in common-law jurisdictions as a civil wrong. The necessary elements of fraud as a tort generally consists of the intentional misrepresentation or concealment of an important fact on which the victim is meant to rely and in fact does rely on, to the victim's detriment. While exact definitions and proof requirements vary among jurisdictions, this is generally true. It is frequently claimed that proving fraud in a court of law is challenging since the fundamental factor at issue is the intent to defraud. Therefore, the standard of proof for demonstrating fraud is "higher than for other civil claims." Some laws require the victim to prove fraud with clear and convincing evidence, which makes it more difficult.

The recovery of a monetary award to compensate for the harm caused, punitive damages to punish or deter the misconduct, and possibly other actions are examples of remedies for fraud. Rescission (i.e., reversal) of a fraudulently obtained agreement or transaction is one example of a remedy for fraud.

Fraud may be used as a defence in a civil action for contract breach or particular performance in situations where a contract was fraudulently induced. In a similar vein, fraud may give a court grounds to exercise its equitable jurisdiction.

Fraud as a Criminal Offence

In common law jurisdictions, fraud is a crime that can take many distinct forms, some of which are broad (such as theft under false pretenses) and others of which are unique to certain victim groups or types of wrongdoing (e.g., bank fraud, insurance fraud, forgery). The components of fraud as a crime also differ. The essential components of theft by false pretence, possibly the most widespread type of criminal fraud, are the deliberate deception of a victim through a false representation or pretence with the intention of convincing the victim to part with property, the victim's parting with property in reliance on the representation or pretence, and the perpetrator's intent to keep the property from the victim.

Elements of Fraud

There are five crucial components that must be proven in court to establish that a fraud crime has been committed, even though the specifics of the laws against fraud vary from state to state and at the federal level:

• A Misrepresentation of a Material Fact: It is necessary to make a misleading statement relating to an important and relevant fact. The seriousness of the misleading statement should be sufficient to significantly influence the victim's choices and behaviour. The incorrect statement might influence someone's decision to buy a product or authorise a loan, for instance.

• Knowledge of Falsehood: The person making the misleading statement must be aware of or have reason to suspect that it is inaccurate.

• Intent to Deceive: The fabricated claim must have been made specifically with the aim of misleading and persuading the victim.

• Reasonable Reliance by the Victim: The court must find that the victim's reliance on the misleading statement is reasonable. It may not be "reasonable" to rely on statements or claims that are bombastic, absurd, or obviously false. However, if the offender purposefully exploited the victim's inability to read, write, or think for themselves, they may be granted civil damages.

• Actual Loss or Injury Suffered: The victim's reliance on the fraudulent information caused them to actually lose anything.

How Does Fraud Occur?

To establish fraud, the criminal must have carried out a number of particular actions.

• The offender must have presented a false statement that appears to be a relevant fact.

• The offender had better be certain that the claim was untrue.

• The deception must have been done with the aim of tricking the victim.

• It is up to the victim to prove how much it trusted the misleading assertion.

• Acting on the purposefully misleading statement should have resulted in harm being done to the victim.

Consequence of Fraud

Depending on the type of fraud committed and how severe the offence was against the victim, there may be different repercussions for the perpetrator. Rarely is there a heavier punishment for civil fraud than paying large fines or paying the victim what is justly deserved. Fraudulent crimes frequently carry a sentence that combines jail time, probation, and hefty penalties.

The year 2001 is a well-known illustration of how financial fraud may negatively affect a business. Enron, an energy service firm, committed corporate financial fraud by misrepresenting its profitability and fabricating sales records in order to conceal the organization's financial situation. Enron was a market leader in the energy sector before to the fraudulent behaviour, but after internal financial fraud was discovered, the company's stock price crashed and it went bankrupt. Due to the reckless and unlawful business practises of firm executives, company employees lost their jobs, and several Enron officials even received jail time. The Sarbanes-Oxley Act of 2002's anti-fraud provisions were made possible in large part due to the Enron scandal, which played a significant role in business reform.

Common Fraud

Fraud can take many different shapes and originate from many different places. Fraudulent offers also referred to as "scams," can be delivered in person or by ordinary mail, email, text messaging, telemarketing, and the internet.

Check fraud, or the use of paper checks to conduct fraud is one of the most prevalent types of fraud.

Identity theft, or the collection and unauthorised use of personal financial information, is one of the key objectives of check fraud.

The identity thief can obtain the victim's name, address, phone number, bank name, routing number, bank account number, and signature from the front of every check written. The retailer may also include other personal data, such as the date of birth and driver's licence number.

Experts in the protection of identity theft advise against using paper Cheque whenever feasible because of this.

Cheque Fraud

Cheque fraud is frequently of the following types:

• Cheque theft: stealing Cheque to be used fraudulently.

• Cheque Forgery: Using stolen Cheque to either sign a Cheque without the drawer's permission or endorse a Cheque that is not made payable to the endorser Cheques that are counterfeit are compared to Cheques that are forged.

• Cheque Kiting: A Cheque that is written in order to access money that hasn't yet been deposited in the checking account. Kiting, sometimes known as "floating" a check, is the usage of Cheque to obtain unreported credit.

• Paper Hanging: writing Cheque on accounts that have been closed with the perpetrator's knowledge.

• Cheque Washing: removing the signature or other handwritten information from Cheque with chemicals so they can be rewritten.

• Cheque Counterfeiting: writing Cheque without authorization using the victim's account details.

Conclusion

All too frequently, people bring fraud claims into strictly contractual disagreements, demanding enormous punitive damages and making several false promises in an effort to scare the other party or out of passion. The courts and arbitrators, who are accustomed to "over pleading," often dismiss such allegations, thus we typically don't advise our clients to do so.

FAQs

Q1. Which section is related to fraud?

Ans. Specifically, section 421 of the Indian Penal Code (IPC) deals with the offence of "dishonest or fraudulent removal or concealment of property to prevent distribution among creditors". In other words, whoever dishonestly or fraudulently removes, conceals, transfers, or delivers to any person, or otherwise deals with any property, with intent to prevent that property from being taken in execution of a decree for the payment of money obtained against him or any other person, or with intent to prevent that property from being taken in execution of any process issued by any Civil, Revenue or Criminal Court in India, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.

Q2. Who is liable for fraud?

Ans. In general, all those individuals who perpetrate fraud are considered to be liable for the crime. This includes individuals who plan and execute fraudulent schemes, as well as those who knowingly participate in or assist with the fraud.