Contract Act. Fraud on third parties committed by employees during the course of their action and while working on behalf of the employer. Employer is liable for such actions. Karnataka High Court.

Electronic Research Private Ltd vs Canara Bank and others. Regular First Appeal 253/2000 decided on 22 December 2020.

Judgment Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/357268/1/RFA253-00-22-12-2020.pdf

Held: Para 74. Section 238 of the Indian Contract Act, contemplates that if any misrepresentation is made or fraud committed by agents, acting in the course of their business for their principal, have the same effect of agreements made by the agents as if such misrepresentations or fraud had been made or committed by the principals but misrepresentation  made or frauds committed  by  agents. The misrepresentation and frauds alleged to have been committed by the employees during the course of their action while working on behalf of the company, a principal, it is within their authority while acting upon and therefore such acts binds the principal employer. Master is liable for the fraud committed by the employees whether it was for the benefit of Master or not as held by the Hon’ble Apex Court in State Bank of India vs Smt. Shyama Devi reported in AIR 1978 SC 1263.

76. Plaintiff has to own the responsibility for the fraud committed by its employees. Indisputedly, no amount was credited to the Government revenue towards the customs duty liable to be paid on the imported goods which were cleared on the basis of fake TR-6 challans. The customs duty paid on  demand  made by the department, at any stretch of imagination cannot be held to be double payment. No person can siphon off the  Government money and enrich themselves causing loss to  the  revenue.  Indisputably, no credit is made to the account of the Government revenue. The primary liability is with the plaintiff – company to discharge the same