What is a Non-Disclosure Agreement or NDA?
A non-disclosure agreement (NDA) is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA). Thus, a Non-Disclosure Agreement is an agreement in which one or more parties to an agreement agree not to disclose the confidential information specified in that agreement. Use of non-disclosure agreements in India is governed by the Indian Contract Act 1872. An NDA must be stamped to be a valid enforceable document.
By whom are they used?
NDAs are signed when two entities are considering doing business and need to understand the processes used in each other's business. Thus they are used for the purpose of evaluating the potential business relationship. These agreements are commonly entered into by companies, partnerships, individuals, societies and other entities who would consider these agreements necessary.
What purpose do they serve?
Use of an NDA is crucial in many circumstances. By signing an NDA, participants promise to not divulge or release information shared with them by the other parties involved. If the information is leaked, the injured person can claim breach of contract. NDA can even help the original creator hold onto the rights to a product or idea. In certain cases, it can used to tie in employees who are developing patentable technology if the employer intends to apply for a patent. These agreements also help the parties to understand their duties and privilege and formalise relationships. Thus, Non-disclosure agreements have become very important in recent times.
Types of Non-Disclosure Agreements
A non-disclosure agreement (NDA) may be classified as unilateral, bilateral, or multilateral:
A unilateral NDA is sometimes referred to as a one-way NDA. It involves two parties where only one party (i.e., the disclosing party) anticipates disclosing certain information to the other party (i.e., the receiving party) and requires that the information be protected from further disclosure for any reason whatsoever.
A bilateral NDA is sometimes referred to as a mutual NDA or a two-way NDA. It involves two parties where both parties anticipate disclosing information to one another that each intends to protect from further disclosure. E.g. - Joint Venture.
A multilateral NDA involves three or more parties where at least one of the parties anticipates disclosing information to the other parties and requires that the information be protected from further disclosure. This type of NDA eliminates the need for separate unilateral or bilateral NDAs between only two parties.
Some Important Clauses of NDA
An NDA should always be put down in writing. A well drafted NDA must include the following clauses:
Definition of “Confidential Information”: This is the starting point of any NDA. What information ought to be protected under the NDA and what may not be considered confidential must all be defined. The must be a special and specific mention of any material that may be considered to include ‘trade secrets’ of the business. This clause can also contain the manner in which the information will be shared with the receiving party. Usually, such information is detailed in a schedule and attached to notices sent by email.
Description of the Parties: It is the requirement of every agreement that there should be the proper description of every party to the agreement along with their respective full initial and registered address and the representative who shall have access to the confidential information that is shared during the term of business.
Term of the agreement: The time for which such an agreement shall last should be mentioned specifically in the agreement so that there is no ambiguity left open. This would mean the duration of time for which the recipient of the information is expected to hold the secrecy of that information. This period includes the day when NDA comes into effect till the time it expires due to completion of the contract. The duration, whether for a definite or indefinite period, is at the discretion of the parties.
Use of confidential information:Whether use of confidential information is given without restriction or subjected to certain limitations depends from party to party. Hence, the agreement must clearly mention the intended use of such information and amongst whom such information needs to be shared. It is should state the purpose of sharing the information, where it can be used and the names of all the third parties who will be dealing with confidential information.
Obligation to disclose: There are certain circumstances wherein the party can be bound to disclose the information. For example, when the recipient is legally compelled to disclose the confidential information to a government agency, court, lawyers or any other authority. Thus when a party is bound to disclose confidential information under such circumstances, this clause protects the parties by acknowledging that such disclosure will not amount to violation.
Dispute Resolution/Remedy clause: The remedy in case of breach must be clearly stated in the agreement so that in case of breach of the agreement the primary party will have the right to proceed legally in a certain prescribed manner. It is necessary that the disputes arising out of the said agreement should be resolved quickly and cost effectively. An alternative dispute resolution method of Arbitration is most recommended. In such cases, the Arbitration terms, the seat of arbitration, number of arbitrators, their powers and appointment should be clearly defined in the said clause so that so that there is no dispute regarding the remedy and dispute resolution.
Jurisdiction clause: The agreement must specify the courts of which city will have jurisdiction in case of dispute arising between the parties.
Return/Destruction of Information:After the expiry of the term of the agreement, the receiving party is obligated to either destroy or return the confidential information. The agreement shall include necessary clauses of the process that needs to be adopted after maturity of such agreement. Whether the information has to be destroyed or returned is mentioned under this clause.
Non-Binding clause: This clause implies that any party can terminate the association at any point in time. The signing of the agreement does not always imply that there will be the permanent relationship between the parties. Therefore, this clause ensures the right of both the parties to withdraw from the relationship in accordance with law and by following the procedure mentioned in this clause.
Benefits of an NDA
- A non-disclosure agreement allows the parties to accommodate their obligations. It helps to tailor their confidentiality terms, when the obligations do not apply and when they would terminate.
- A non-disclosure agreement describes exactly what, the confidential matter is and helps in maintaining their secrecy. Drafters can also include exceptions to the prohibitions on disclosure.
- Non-Disclosure Agreement deals with the provisions and penalties in consequence of the recipient breaching the said agreement. The discloser will be entitled to damages in such cases. This issue can also be brought to the court where they can receive an injunctive relief preventing the recipient from further disclosing the confidential information.
- It helps to achieve the purpose of their commitments by performing due diligence in safeguarding the confidential information. In the absence of a non-disclosure agreement, due diligence or preliminary discussions may not take place.
- A court cannot give relief for the breach of confidential trade secret or information if the owner of that information has not entered upon Non-Disclosing Agreement. A court grants relief to the owner if he has attempted to protect that information from being disclosed.
Therefore, non-disclosure agreements are an important legal framework used to protect sensitive and confidential information. There are vital for the smooth functioning of any enterprise by protecting sensitive information that is used in the course of doing business.
To create your own Non- Disclosure Agreement online-
- Visit our website https://www.thelegalcapsule.com
- Select the pre-drafted template of Non- Disclosure Agreement and fill in your details.
- Use our ‘Expert Advice’ option to add or amend clauses.
- Review your document once completed.
- Download and print the prepared document on stamp paper. Or;
Opt to have documents printed on Stamp paper and delivered to an address of your choice.
- E-sign your document using Aadhaar based verification.