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Fraud as defined in the Contract Act means actual fraud. But in equity the Courts have also developed the doctrine of 'constructive fraud.' The following extract from Snell's Principles of Equity, Chapter 6, Part II, pages 545 on the concept of 'constructive fraud' is being quoted: . .

"In equity, the term 'fraud' embraces not only actual fraud, in the sense just defined, but also certain other conduct which falls below the standards demanded by equity. Courts of equity did not even stop at 'moral fraud in the ordinary sense' but took account of any 'breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience' (Nocton v. Lord Ashburton 1914 A.C. 932 at 954, per Viscount Haldane L.C.). the Courts have refused to define this extended, or constructive, fraud; for, in the words of Lord Hardwicke, 'Fraud' is infinite, and were a Court of equity once to lay down rules, how far they' would go, and no farther, in extending their relief against it, or to define strictly the species of evidence of it, the jurisdiction would be cramped, and perpetually eluded by new schemes which the fertility of men's invention would contrive."

While examining the question whether a fraud had been played upon the Bank in making the application for withdrawal it is fraud the Bank in making the application for withdrawal it is fraud in this wider sense of 'constructive fraud', which defines definition which has to be taken into account. If the result dismissing the Bank's application would be to close an unconscionable transaction in favour of the respondent wrested by it unscrupulously the Court would be slow in dismissing the application. While it can be contended that in the case of compromise decree, the narrower concept of fraud defined in Section 17 of the Contract Act be applied because it is after all a compromise which is in the nature of contract which is assailed the same cannot be said in respect of unilateral transaction of withdrawal. In the latter case the doctrine of 'constructive fraud' has to be applied.

21. Certain circumstances indeed lend weight to the case of the Bank to say the least that it was induced by certain promises of the respondent to move the application of withdrawal promises which it transpires, the respondents never intended to keep. A decree for Rs. 3,82,827.70 with interest @ 18% per annum from the date of the suit was passed in favour of the Bank on 21.2.1998. The Bank was entitled to interest @ 18% from the dateof institution of the suit which was filed in the year 1977 and this amount would have swelled up to a very impressive amount on the date of the withdrawal which according to the learned Counsel for the Bank works out to about Rs. 22 lakhs. It is difficult to believe that while the Bank would give up its huge claim in the money decree against the proprietorship firm Jamuna Prasad Munni Lal and would settle it for a sum of Rs. 1.54 lakhs only it would choose to withdraw the second appeals and pay the decretal amount in the suit filed by the respondent firm which according to respondent was a stupendous Rs. 45,81,124.05 claimed in the execution application. The respondents have submitted that the two suits were between different parties and that while the suit of the Bank was against the proprietary concern M/s. Jamuna Prasad Munni Lal of which the proprietor was Jamuna Prasad Jaiswal, the other suit was filed by respondent No. 1 firm M/s. Jamuna Prasad Jaiswal and Sons. The submission of the respondent is that the two firms being altogether different the terms of the compromise in the suit filed by the Bank had no relevance in the suit filed by the respondent firm against the Bank which was on a totally different cause of action. The distinction between the parties in the two suits is emphasised by reference to the fact that orders were passed rejecting the impleadment of the new firm in the suit filed by the Bank and by reference to orders refusing to stay the suit filed by the firm against the Bank on the grond that identity of the parties differed. The fact, however, cannot be lost sight of that three sons of Jamuna Prasad Jaiswal were partners in the new firm. The identity of the two firms in law might be different but after the death of Jamuna Prasad Jaiswal his interest in the proprietary concern developed upon his sons who were partners in the new firm. There was thus an identity of interest of the sons both in the assets of the proprietary concern as well as in the new firm and it cannot be said that the Bank would view the transaction in the two suits as wholly different. The contents of the application for withdrawal themselves indicate that there had been a settlement between the parties to which reference was made in the application for withdrawal. Although the terms of the settlement have not been indicated in the application but the case of the respondent that there was no such settlement in respect of the decree in the firm's suit can not be believed for reasons that follow. In any case it is clear from the recital in the application for withdrawal itself that the Bank believed that there was a settlement. That apart the operative part of the judgment of the lower appellate Court in the firm's suit gives an option to the Bank to pay a lower rate of interest on the decretal amount, if it were paid within one month. The fact that the Bank chose not to pay the decretal amount but took the risk of filing the appeal on payment of substantial Court fee indicates that the Bank was serious in the remedy of appeal which it has preferred and had taken the risk to pay a far more heavy rate of interest if the appeals were to be dismissed. The case of the Bank is that there was a settlement while the case of the firm respondent No. 1 is that there was no settlement in respect of the decree in the firm's suit. It is to be noted that the respondent had applied for the listing of the Bank's application and at no stage before the order dismissing the appeals as withdrawn was it alleged by them that the recital in the application about the settlement was incorrect. To prove the settlement, the Bank has filed affidavits of Rajiv Ranjan and V.S. Dixit. The settlements is said to have been made with Vijay Shanker Jaiswal, one of the sons of Late Jamuna Prasad Jaiswal, for and on behalf of respondent No. 1. No affidavit of Vijay Shanker Jaiswal has been filed denying the settlement. The fact then that in the withdrawal application itself there is reference to the settlement and the circumstances which have been referred to above also lend weight to the existence of settlement and in the absence of any affidavit of Vijay Shanker Jaiswal in denial. I am inclined to hold that the Bank was induced to make the application for withdrawal on account of an assurance given by the respondent firm that it would not execute the decree. The mere fact that the Bank did not tender the payment of Rs. 1 lakh to the respondent which according to the Bank's case was settled is not very material because soon after the order dismissing the appeals as withdrawn the respondent had gone back upon its assurance and had applied for execution. If the application of the Bank is dismissed, the respondent would get away with a very unconscionable transaction in its favour. The net effect of the whole deal is that while the Bank would barter away the claim of about Rs. 22 lakhs or some such heavy sum for Rs. 1.54 lakhs, the respondent would recover a sum which according them is about Rs. 45 lakhs merely on account of the Bank withholding the Bank Draft of Rs. 1 lakh which according to the Bank's case represented the sale proceeds of the assets of the proprietorship concern hypothecated to the Bank. In the circumstances, I would rather believe the Bank's version that a fraud had been practised upon it in moving the application for withdrawal. The fact that the respondent waited for orders on the application for withdrawal and applied for execution immediately after it was passed indicates that the respondent never intended to keep its promise not to apply for execution and a case of actual fraud under Section 17 of the Contract Act is made out. In any case even if actual fraud is hot proved a case of 'constructive fraud' is made out in view of the circumstances above narrated and the fact that the respondent would otherwise be wresting a wholly unfair deal. Thus there is sufficient ground for recall of the order dated 25.5.2001 dismissing the appeals as withdrawn. The applications are allowed. The orders dated 25.5.2001 dismissing the second appeal Nos. 893 of 1999 and 468 of 2003 as withdrawn are recalled and the aforesaid appeals are restored to their original number and position.