What is a Non-Disclosure Agreement

A Non Disclosure Agreement (NDA) is a legal and confidential agreement which is executed between two parties where both the parties promises not to disclose any information which is confidential. A Confidential information is such which cannot be disclosed to any third party and has to be secret. Hence, NDA creates a confidential relationship between two parties. Such agreements are mostly used by the individuals, companies to maintain the secrecy of particular information.

NDA’s are sometimes also known as Confidentiality Agreement or a Secrecy Agreement, however the purpose remains the same.

Examples of Confidential Information

A Confidential Information may include:

• Any information which relates to any secret recipe used while formulating a consumable item
• New Invention for any industrial use or for any specific purpose
• Information provided to employees of a company during the tenure of their employment
• Innovative work carried out in microbiology, chemical labs and other pharmaceutical companies
• Any important information which is related to the specific client of a company
• Information which needs to be protected under any law related to Information Technology

Regulatory Authority of Non-Disclosure Agreement in India

In India, Non – Disclosure Agreements, like any other agreements are governed by the Indian Contract Act, 1872. Non Disclosure Agreement becomes valid only when they are properly stamped and is registered under the Registration Act, 1908.

Purpose of Non-Disclosure Agreement

The only main purpose of executing a Non-Disclosure Agreement is to protect the information which is confidential to a particular business. Without Non-Disclosure Agreement, there can be issues related to breach of information, theft of data and leakage of any other important secret information which can be shared to the competitors of that particular company. Hence, to protect the interests of the company, a Non Disclosure Agreement is must. The parties to the agreement will also be able to understand their rights, duties and liabilities. Being a binding force, the parties to the Non-Disclosure Agreement needs to follow it.

Advantages of a Non Disclosure Agreement

Some of the advantages of Non Disclosure Agreement are as follows:

• It Protects the confidential information to be shared between two parties
• It helps in Reducing the chances of loss of valuable information.
• This agreement acts as a protection to the party disclosing information.
• Helps in Providing legal remedies in case of breach of the agreement.
• NDA is beneficial in commercial scenarios where there are a large number of parties in the contract.

Types of Non-Disclosure Agreement (NDA)

In India, the most popular types of Non-Disclosure Agreement are as follows:

• Unilateral NDA: Such kind of agreement involves only two parties in which only one party discloses particular details to the other party and expects from the second party to prevent information from any kind of further disclosure.
• Bilateral NDA: Under such agreement also, two parties are involved and both the parties reveal the confidential information to each other and compel each other to protect the information from disclosing to another party.
• Multilateral NDA: In this kind of agreement, at least three parties are involved. All the parties will enter into this agreement and will share mutual rights. Example: Agreement between manufacturer, supplier and distributor

Important Clauses of Non-disclosure Agreement

At the time of drafting a Non-disclosure agreement, it is essential to include the following clauses:

• Parties– It is important to mention the name of the parties in a Non-disclosure agreement. The Non-disclosure agreement can be unilateral, bilateral or multilateral, depending on the number of parties.
• Description of confidential information- In this clause, you need to define about what all will be covered as confidential information in the agreement.
• Tenure of the Non-disclosure agreement- The tenure of the agreement will help in understanding the time limit of the confidential information which cannot be extended once the time frame gets over.
• Rights of the Parties- The rights, duties, obligations and liabilities of the parties must be well defined in the Non-Disclosure Agreement.
• Right to sue – In case there is a breach of the Non-disclosure agreement, THE Contractual Remedies available to the parties must be well defined.
• Compensation in Damages or Injunction- The aggrieved party can also issue an injunction against use of confidential information in the future.
• Arbitration/ mediation clause- There must also be a clause in the Non-disclosure agreement regarding out of court settlement and procedures such as negotiation or mediation using an impartial third party.

Penalties

The penalties over the breach of the contract are generally specified in the agreement itself, and breaks or infringement is accordingly dealt with. If in any agreement the sanction is not specified, it is clearly added that the humam guilty of violation or breach of contract shall be sued for such misappropriation.

Conclusion

Non Disclosure agreements are on the rise these days in India. Law governing such agreements is the Indian Contract Act, 1882. There are many important circumstances and situations where the use of NDA can be very beneficial. Such situations can be like tie of employees who are working over the patentable technology, where the employer intends to apply for the patent. Non – Disclosure agreements are playing a very important role in India as Outsourcing business is very burgeoning. It’s important to stamp the NDA to make it valid, enforceable document. NDA creates a confidential relationship between the parties and protects the proprietor information or trade secrets.