Non-Disclosure Agreement (NDA)

What is a Non-Disclosure Agreement (NDA)?

The Non-Disclosure Agreement (NDA) protects confidential information/secret information disclosed by individuals or businesses to each other during the evaluation of business opportunities, and negotiations, before investing or entering into transactions with each other. It creates an enforceable agreement between the parties that they will not disclose or use any confidential information for any purpose other than that set out in the agreement.

Non-disclosure agreements (NDAs), also known as Confidentiality Agreements, help parties feel comfortable revealing confidential information with commercial value that they might otherwise keep secret so that commercial negotiations can continue openly and honestly.

Some examples of situations where an NDA/Confidentiality Agreement might be needed include:

• where two parties are investigating the possibility of an investment or business sale agreement with each other, and wish to discuss commercially sensitive information;
• where a new start-up or investor has an idea and wishes to discuss it with another party to test the possibility of investment or partnership.

This is a general NDA and not suitable for employment relations.

What is the difference between a Non-Disclosure Agreement and a Non-Compete Agreement?

This Non-Disclosure Agreement is often used in conjunction with a Non-Compete Agreement. A Non-Compete Agreement is a legal contract that restricts a current or former employee from engaging in competition with their employer for a specific period after their employment ends.

What are the different types of NDA?

There are various types of NDAs, commonly categorized into the following two:

• One-Way NDA: Under this NDA, the confidential information of the disclosing party/party sharing the information is protected. This is often used before entering into an employment agreement or consultancy agreement.
• Mutual NDA: Under this confidential information shared by all the parties to the agreement is protected. This is often used when businesses enter into a collaboration or new project.

Is it mandatory to have a Non-Disclosure Agreement?

No, it is not mandatory to have a Non-Disclosure Agreement. However, it is better to always enter into a Non-Disclosure Agreement before revealing any confidential information of commercial value to other parties. This will help in protecting confidential information or business secrets and help in building trust between parties.

What has to be done once a Non-Disclosure Agreement (NDA) is ready?

Once all the information has been filled in, the Non-disclosure agreement would need to be printed on non-judicial stamp paper or e-stamp paper where such e-stamp paper is available in certain states. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

Once the document is printed on the stamp paper, both parties shall sign it and keep a copy of the same.

Where the parties are companies, only the persons authorised by board resolutions should sign the agreement on behalf of the company.

Can an NDA be terminated?

Yes, NDAs can be terminated under certain conditions mentioned under the NDA document itself or as per the applicable law. NDA gets automatically terminated once the period mentioned in the NDA ends, mutual agreement of the parties, or a material breach by either party.

What must a Non-Disclosure Agreement contain?

An NDA typically includes the following key clauses:

• Confidential Information: A clear definition of the type of information considered confidential under the agreement. This could include specific information, documents, or categories of data disclosed by one party.
• Permitted use: Under the NDA, the disclosing party can mention, how can the receiving party use the confidential information. This includes to which parties can the receiving party disclose the information including employees, contractors, etc.
• Term and termination: The duration can be for a specific period such as 1 year or 2 years or some information like trade secrets for an indefinite period.
• Exceptions to disclosure: This includes where the receiving party is obligated to disclose confidential information due to legal obligations or court orders.

What laws are applicable to NDA?

The broad principles of the contract under the Indian Contract Act, 1872 and restraint of trade apply to non-disclosure and confidentiality agreements.

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