Non-Disclosure Agreement (NDA) In India
Introduction
Non- disclosure Agreements are contracts in which the parties agree not to disclose any of the material covered by the agreement. A nondisclosure agreement totally bars third parties from accessing the information covered by the agreement. Refusal to Disclose In the world of business, agreements are frequently utilized with regard to partners, the company’s intellectual property (typically for trade secrets), and also with regard to personnel.
To put it plainly, we can state that the agreement may be held liable for damages if any individual reveals any banned information after signing. Making the agreement legally binding is crucial for suing the other party for damages.
Non-disclosure agreements can be used for a variety of situations where it is preferred that the person remains silent. Common applications of an NDA include, but are not limited to, the following protections:
- Disseminating information about intellectual property to partners, contractors, and other business associates;
- Discussion with a partner or investor about any contentious idea or company strategy.
- Trade secrets of any form of business, such as those relating to sales leads or business plans
- Information about an adulterous or consenting sexual relationship or any other potentially embarrassing details that could damage a person’s reputation
- Information provided by lab testing about a patient’s lab results for any ailment.
Different Names
Different names of non – disclosure agreements are referred but they share the same meaning:-
Types Of Non-Disclosure Agreement
Unilateral NDA – Only two parties are involved in this type of NDA, and only one of them gives specific information to the other party with the expectation that it won’t be shared with anyone else.
Bilateral NDA: This agreement likewise involves two parties, and one of them discloses information to the other while obligating the other to keep it confidential. For Example Alliance.
Multilateral NDA: In this case, there are more than three parties engaged, and one of them will release the information to the other parties and require them to keep it confidential. These NDAs also do away with the requirement for separate unilateral or bilateral NDA.
Key Information About NDA
An NDA protects the information shared between two or more parties from disclosure to others while acknowledging a confidential relationship between them.
The NDA is frequently used before discussions about potential joint ventures between businesses.
To protect the private business information of a company, NDAs are frequently requested from employees.
Important Elements Of NDA
Who are the parties to the agreements, mentioning, receiving, and disclosing party;
Description of the confidential information;
The purview of the deemed confidential agreement. With respect to requirements;
What needs to be excluded from the confidentiality requirement means the information which is already in public, and another party is well known to that information;
Validity of the Non-Disclosure Agreement. Generally, the NDA’s are valid for up to two to five years.
Duties and obligations to the parties of the Non-Disclosure Agreement.
What will be the consequences of a breach of Non – Disclosure Agreement?
Dispute Resolution, along with the jurisdiction where a case can be filed if a breach occurs.
Exclusion Of NDA
Each NDA has included an exception from one or more other parties’ criteria (Receiving). To address those circumstances, which can make it difficult for the other side party to maintain the confidentiality of the information, are the reasons for exclusion.
Some of the exclusions are:-
- The recipient is already familiar with the details
- The information was already in the public domain; the recipient shouldn’t have made it available
- Information provided by third parties that are not obligated to the party providing the information
- Non-Disclosure agreements can also address the case in which the recipient of the information is required by law to disclose the information. Without violating the NDA, the recipient shall be permitted to divulge information on court orders.
Key Functions Of Non – Disclosure Agreement
- The key functions of NDA are as follows:-
It protects sensitive information- After signing, the agreement promises not to reveal the information further. In case the information gets leaked, the injured person can sue him, claiming breach of contract.
It helps the inventor to keep patent rights- In the case where a new product or concept of development is going on, NDA can help the inventor in protecting his rights. Disclosure of new inventions in public can void the right of the patent. A properly drafted Non-Disclosure Agreement can help the investor to protect his right of him over the product or an idea.
- It also differentiates between exclusive and confidential information.
Benefits Of Signing Non – Disclosure Agreement
The NDA is a legally binding instrument that aids the parties in clearly defining their commitments. An agreement enables the parties to clearly comprehend the circumstances around the application and termination of the obligations.
The NDA is a crucial document that can be used in the event of a future dispute. If any of the contract’s parties violate the terms of the agreement, they will be held responsible for the resulting damages.
It also offers details about the precise sensitive issue and aids in maintaining secrets.
By taking reasonable precautions to secure sensitive information, also aids in realizing the parties’ promise.
Additionally, it aids in the protection of intellectual property, including trade secrets, sensitive information, and proprietary information. In a nutshell, NDA protects the organization.
Issues That Can Be Raised Due To NDA
Lack of drafting leads to confusion; NDA must be drafted by a good lawyer. The main issue with the NDA is that it’s very difficult to determine what is protected in the agreement and what is not. Hence, bad drafting of the agreement can lead to confusion to avoid this NDA shall be drafted in a very appropriate manner providing clear information.
Unfair NDA can lead to future disputes; Any small mistakes or wrong information can lead to any future dispute. Every clause of the agreement shall be easily understandable to both parties, and parties shall have given their complete consent.
Lengthy Litigation; Entering into any kind of contract can cause issues in the future. Enforcement of agreement shall be as per the law; otherwise, lack in this shall drag a person into a lengthy litigation process.
Situations When NDA Shall Be Drafted
- NDA shall be drafted in the following situations:
- When the parties are entering into a business agreement
- When one of the parties is looking for expert advice on a new product
- When a new employee is hired by a company
- When a sensitive project is in progress and a contract with a contract worker needs to be signed
- When a new investment agreement is made
- When a party must deal with a client about sensitive information
- When new products are being made.
Few Examples Which Can Be Covered By NDA
- Documentary Films
- Advertising Agencies
- Consultants
- Audits
- Website development
- Internships
- Visits or Factory Tours
- TV Productions
- Software Development
Mandatory Precautions While Drafting NDA
- A few things should be kept in mind while drafting an NDA:-
All information must be accurate, and the agreement’s language must be clear and concise.
Make sure that all parties are involved and have a vocal reading of the entire agreement. so that there won’t be any misunderstandings in the future.
The agreement must not contain any extraneous material, and sentence fragmenting must not be in contradiction.
- The agreement must include the date of issuance and expiration. if necessary, timely renew the agreement.
When Are Non-Disclosure Agreements Valid?
The parties could sign an NDA with the false belief that it is legitimate. Since the parties concur on every clause in the NDA, it is considered to be valid. However, the actual test of whether the NDA is still valid occurs when one of the parties attempts to enforce it. The condition where the agreement is enforced and unenforced must be understood by the parties.
- In a court of law, attorneys may contest the enforcement of an NDA. the most typical difficulties include.
- The standards for writing can differ by jurisdiction if the provisions of the NDA are extremely broad otherwise, the NDA must be constructed in a very reasonable manner. If the NDA is too onerous, ambiguous, or irrational, the court will enforce it.
- If the confidentiality of the information provided under the NDA is not maintained by disclosure
- If the receiving party exposes the secret information to a third party. In this situation, the NDA cannot be used to hold the third party accountable.
Penalties
- The agreement itself typically specifies the consequences for contract violations, and any violations or infringements are handled in accordance with those provisions. If the penalty is not included in any agreement, it is expressly stated that the party that violated or breached the agreement will be held liable for any misappropriation.
Registration Of NDA
- Non-Disclosure Agreements are controlled by the Indian Contract Act, and as a result, registration of the NDA is not required. However, the registration of NDA makes it simple to demonstrate its legitimacy.
Knowing The Validation Of NDA
- Any party that learns or suspects that trade secrets belonging to the company or private information covered by the NDA have been disclosed to the public must act immediately. It’s crucial to gather all the information about the material that has been leaked for a party, including who leaked it and where it came from. After that, the person will employ a lawyer with IP experience and file a lawsuit against the guilty party.
Important Clauses In Non - Disclosure Agreements
Duration: the time frame during which NDAs are intended to be kept. the amount of time that the recipient of the information is required to keep the knowledge secret. This time span includes the day the NDA is put into effect and the day it expires because the contract has been completed.
Confidential Information: This section of the NDA outlines which information must be kept private or confidential. Typically, notices delivered through email include a schedule outlining this information. The agreement may contain a description of this mechanism.
Consequences On Breach Of An Agreement Of NDA: What would happen if there was a confidentiality breach? The contract needs to make this clear. Even while severe financial penalties are frequently applied for psychological effects, they might not be effective in an Indian situation. However, obtaining an indemnity for all losses incurred as a result of a breach is typically enough.
Duties And Obligation Of The Parties To NDA: The duties and obligations of the parties are typically spelled out in the contract. For instance, the party may be compelled to communicate through a specific type of encrypted method or may be persuaded to designate any material intended to be protected by the agreement as “confidential,” etc.
Right To Seek An Injunction In NDA: Such contracts frequently state that the parties acknowledge and agree that monetary damages alone cannot adequately compensate for losses resulting from the violation. This is done to make it simple for a party who discovers a breach to contact a court and get a stay. It is a frequent practice, but its effectiveness is debatable.
Dispute Resolution Clause In NDA: To keep the cost of enforcing the contract low, it is crucial to resolve any issues arising swiftly and inexpensively out of the agreement. An NDA’s jurisdiction clause is crucial.
When Should Non – Disclosure Agreements Be Used?
Contract NDA clauses: It is customary to include an NDA clause as an extra measure of security in all agreements. Unless a portion requires removal, it usually remains. Overall, it is beneficial to both parties because business information must be treated with secrecy and cannot, under any circumstances, be disclosed to the media or other third parties.
Non-disclosure agreements to safeguard trade secrets: When a trade secret needs to be protected, we frequently advise signing one. Although not yet common in India, it is a very helpful first step. Such agreements should be required to be signed by top executives and staff. It significantly reduces their likelihood of starting a business.
IPR: Today, a company’s intellectual property rights are among its most valuable and useful assets. These assets or properties might be used to pay off debts, obligations, or bequests. Companies take the necessary precautions at the proper times to safeguard their intellectual property rights and effectively utilize that property.
NDAs between Persons: In a non-disclosure agreement (NDA), two parties—the disclosing party and the receiving party—agree in writing not to share specific proprietary or secret information that is expressly listed in the document. The Disclosing and Receiving Parties may be individuals who are attempting to protect the privacy of certain information.
Conclusion
- Non Disclosure Agreements are very common in India these days. The Indian Contract Act of 1882 is the applicable law in these contracts. There are numerous critical occasions and conditions where the employment of NDA can be quite advantageous. Such circumstances could include a team of employees working on a patentable technology while the company plans to file for a patent. In India, where the outsourcing industry is booming, non-disclosure agreements are essential. To make the NDA a legal, enforceable instrument, it must be stamped. NDA establishes a private connection between the parties and safeguards any proprietary information or trade secrets.
Top 13 Interesting Facts About NDA
A Non-Disclosure Agreement is governed by the Indian Contract Act, 1872 and according to it, a Non-Disclosure Agreement (NDA) is a legally binding contract.
It is advised to stamp the NDA in order to assure its continued validity and enforceability.
While the cost of stamp duty on a non-disclosure agreement varies from state to state in India, it often falls within the range of Rs. 20 to Rs. 100.
You could be sued by your employer for violating an NDA, and you might also be forced to pay financial penalties and potential court fees.
It is possible that the information can be protected indefinitely, or for as long as the information would be considered a “trade secret,” assuming the information is a “trade secret” as defined by the relevant state legislation.
What is considered secret and non-confidential should be stated in an NDA in a reasonable and specific manner. An agreement may be void if the language is overly vague, unreasonable, or burdensome.
When secret information is shared with potential investors, creditors, workers, advisors, clients, or suppliers—or with any other stakeholders who require access to the company’s confidential information—an NDA is often used.
When three or more parties enter into a multilateral NDA, at least one of the parties must anticipate providing information to the other parties and demand that it be kept private.
The prospective buyer and seller will be the parties to the confidentiality agreement. The “Receiving Party” is referred to as the purchaser, and the “Disclosing Party” is the seller. A guarantee could also be needed if the buyer has limited or no assets.
If you sign the NDA as an individual (i.e., as a sole proprietor), you will be held personally responsible for any lawsuits that may result from the agreement’s violation.
An NDA does not provide adequate protection for data in electronic form, which is how the majority of personal information is kept.
A bilateral NDA signifies that both parties are committing to protecting one other’s sensitive information, as opposed to a unilateral NDA, which only involves one side.
The three-way NDA, like other NDAs, enables all parties involved in the meeting or discussions to speak freely about the confidential concept without fear that the other parties would steal their idea or infringe on their rights.
Tanisha Srivastava
Writer
13angle
