Non-Disclosure Agreement (NDA)

What is a Non-Disclosure Agreement (NDA)?

A Non-Disclosure Agreement, also generally called as ‘Confidentiality Agreement’, is an agreement wherein the parties agree to share the confidential information/data which is specified in the ‘Confidentiality Clause’ of the Non-Disclosure Agreement. The parties to the Non-Disclosure Agreement also agree not to disclose such information to the third party beyond the terms of the agreement

Other Names of the Non-Disclosure Agreement:

A Non-Disclosure Agreement has multiple names like:

• Confidential Agreement (CA)
• Confidential Disclosure Agreement (CDA)
• Secrecy Agreement (SA)
• Proprietary Information Agreement (PIA)

HOW DOES ENTERING INTO A NON-DISCLOSURE AGREEMENT HELPS?

These days, be it a Start-up or others, the major asset of any corporate body is its Intellectual Property. A Non-Disclosure Agreement helps protecting the Intellectual Property Rights of the parties including its databases, client lists, proprietary information, sensitive business-related information, etc.

Following are some major benefits of entering into an NDA –

• A Confidential Clause in the Non-Disclosure Agreement clearly defines what exactly is the ‘confidential matter’ for which the Non-Disclosure Agreement is entered into.
• It helps in maintaining the utmost secrecy between the parties by binding them legally through various clauses constituted under the non-Disclosure agreement. This prohibits the receiving party from disclosing the confidential information.
• Various clauses of the Non-Disclosure Agreement also draw the timeline up to which the party is obliged to maintain the secrecy. This period could be beyond the effective period of the NDA itself.
• A Non-Disclosure Agreement is legally binding and thus the party infringing the agreement would be legally liable to compensate the damages to the aggrieved party (which is mostly the disclosing party).
• The dispute can be referred to the Arbitrator or even taken to the court if the level of violation demands. That’s how the owner of the confidential information is granted relief as they have taken effort to safeguard the shared confidential information through the Non-Disclosure Agreement.

 Precautions to be taken while entering into a Non-Disclosure Agreement:

If not drafted properly, the Non-Disclosure Agreement may lose its sole purpose. Thus, some precautions shall be taken by the parties, especially by the Disclosing Party, before finalising the Non-Disclosure Agreement draft. Some of the major precautions to be taken are as follows:

• One shall ensure whether all the information which are confidential in nature and shared or will be shared with the other party is clearly and unambiguously mentioned in the Non-Disclosure Agreement.
• Ensure that the party to the agreement clearly understands what they are signing into. Their obligations and rights under the Non-Disclosure Agreement shall be clearly known and understood by the parties.
• It is not advisable to include unfair clauses in the NDA, but prior analysis of the nature of the other party shall be carefully done, which is also known as conducting Due Diligence, and accordingly necessary clauses shall be inserted in the Agreement.
• Behaviour during the NDA can be an early indicator of what the entire negotiation process will be like. while it is not advisable to include unfair clauses in the NDA, it creates a challenging environment to be too rigid.
• None of the clauses shall be confusing or in conflict with the other clause in the same Non-Disclosure Agreement, as it might create confusion amongst the parties. Since, the confusion between the parties may also lead to legal bills.
• In the case of dispute or breach of agreement, if the parties to the agreement mutually agree to refer to an Arbitrator instead of Court, it would be both time and money saving for both the parties.

WHEN TO SIGN A NON-DISCLOSUREAGREEMENT?

There are various events or circumstances under which an NDA shall be entered into and signed. Few of them are as follows:

•  into a business deal,
• While taking expert’s advice on a new product,
• while starting a new project,
• while investigating a possibility of investment with other party,
• while providing employment,
• while signing a contract worker for a sensitive project,
• while dealing with sensitive client information,
• while discussing commercially sensitive information with other party, etc.

so as to keep it secured as per the terms of the Non-DisclosureAgreement which are inserted to protect the proprietary information from being misused.

ARE NON-DISCLOSURE AGREEMENTS LEGALLY BINDING?

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. To ensure the further validity and enforceability of the Non-Disclosure Agreement, it is suggested to stamp the NDA.

IS IT MANDATORY TO PRINT A NON-DISCLOSUREAGREEMENT ON A STAMP PAPER?

It is not mandatory to get an NDA printed on a Stamp Paper. An NDA can be printed on a letterhead of the company and signed by the parties on both sides of each page of the NDA

If you choose to print the NDA on a stamp paper, get it printed on a non-judicial stamp paper or e-stamp paper (available in certain states). Have the NDA signed in the presence of witnesses. After this you are required to get the NDA Notarized.

HOW TO KNOW THE VALUE OF A STAMP PAPER?

Each state in India has different value of stamp paper. Thus, depending upon the state in which the agreement is executed (here, Non-DisclosureAgreement), the value of Stamp Paper shall be derived. The value of Stamp Paper or Stamp Duty payable can be found on the state government websites.

DOES A NON-DISCLOSUREAGREEMENT NEED TO BE NOTARISED?

It is not mandatory to Notarise or to have the Non-Disclosure Agreement signed by Witness. But to ensure the further validity and enforceability of the Non-Disclosure Agreement parties may choose to have witnesses sign the NDA and enact the validity of the document so that it cannot be questioned in the court of Law.

WHAT HAPPENS IF YOU BREAK THE NDA?

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

HOW LONG DO NON-DISCLOSUREAGREEMENT LAST?

There is no such specific time limit given on the duration of the Non-Disclosure Agreement. Generally, the Non-Disclosure Agreement is seen to extend over a period of 2 to 5 years. The corporates may also enter a Non-Terminating Non-Disclosure Agreement so as to protect the trade secrets permanently.

But, as soon as the ‘confidential information’ covered under the NDA becomes public, the Non-Disclosure Agreement has no effect, and it comes to an end.

Importance of mentioning Jurisdiction Clause in NDA:

Jurisdiction clause determines the courts of which city shall have jurisdiction over the Non-Disclosure Agreement in case of dispute between the parties. Thus, it is very important to mutually agree and specify in the NDA that courts of which city will have jurisdiction over the dispute and the infringed agreement.

It is more vital to specify the Jurisdiction where the person from the foreign country is a party to the contract, else it could be a hugely expensive court fight!