File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Critical Analysis: Non-Disclosure Agreements

Business dealings usually involve sharing of information from one end to another. However, this sharing may cause harm to business entities if it is shared with competitors, so to avoid these types of situations, NDAs are signed. A nondisclosure agreement protects the revealed information. This article deals with the various details that one needs to know about the non-disclosure agreements.

NDA is a first agreement which is signed by the parties which are yet to enter into any type of commercial relationship in which they need to disclose any kind of sensitive information related to the business of one party to another one. This sensitive information includes market strategy of any business, trade formulas, customer lists, business dealings, transaction data, details of customer, information related to its intellectual property etc. This agreement puts a legal obligation upon the party who is receiving the sensitive information that information disclosed must not be shared with anyone.

It is signed to prevent any kind of loss to the business which may be caused due to release of its sensitive information by the receiving party in the public or to the competitors. Any kind of breach of the provisions mentioned in the NDA attracts legal consequences. It is governed by Indian Contract Act, 1872. Thus, it is legally binding in nature.

It is usually signed in case of business transactions. In case of an investment transaction, the Investee needs to provide sensitive information to the investor. So here the investor is under legal obligation to not to disclose the revealed information related to the investee's business. But in case of a joint venture, both the parties must maintain confidentiality. The confidentiality clause in the employment agreements also plays the same role as NDA.

NDA is needed to protect the individual interest of the parties while they are entering into any deal.

Essentials of a non disclosure agreement:

  • Name of the Parties
    A NDA shall contain names of the parties between whom the sensitive information is being shared or being transferred. The party who is sharing the confidential information is called 'disclosing party' whereas the party with whom the information is being shared by disclosing party is called 'receiving party'. The agreement usually contains information about the nature of business in which the disclosing party is involved.
  • Definition of confidential information
    It means that all the information which the disclosing party wants to protect from being disclosed to anyone else. All the confidential information should be defined; i.e. What Information is included in the definition of confidential information and what is exempted from its scope. Usually, the disclosing party tries to increase the scope of the definition of the confidential information so that it can protect its interest to a larger extent and the receiving party tries to decrease the same.
  • Duration
    There is no time restriction on how long the NDA will be in effect. Depending on the nature of the business and nature of information, the NDA's legal validity may last for a different amount of time. It typically lasts between two and ten years. The agreement could, however, be extended by the parties indefinitely. When the "confidential information" as described in the agreement is made public, it is unenforceable.
  • Disclosure
    There should be some standardized exceptions in the agreement where the receiving party is not held liable even though it shares confidential information. For example, Receiving party discloses information to a third party in case it is in accordance with court order, or while conducting due diligence the party shares information to its representatives or partners etc, for enquiring about the nature of business in which the disclosing party is involved, or when receiving party is under the legal obligation to disclose the information to any government body, or it is disclosed for the legal proceedings occurring in any competent court. These exceptions are essential in these types of agreements.
  • Return of confidential information
    The receiving party must not possess the confidential information after the NDA expires since it could be harmful to the interests of the disclosing party and could also be used as a weapon by the receiving party against the disclosing party. As a result, the NDA always contains a clause indicating the return of confidential information. In order to ensure that no information ends up in the hands of a third party, information provided through hard copies is typically requested for return, while information supplied through electronic media is requested to be destroyed.
  • Remedies
    A remedy is provided to the victim (often the disclosing party) in the event that any NDA clauses are breached. Either compensation for the aggrieved party's loss is provided in the form of damages to him, or the aggrieved party is granted injunctive relief to stop more information from being revealed.
  • Jurisdiction
    In this clause the parties jointly agree and designate the specific court in which they will resolve their issue.

Types of non disclosure agreement

There are three types of NDA
  1. Unilateral non disclosure agreement:
    In this type of agreement, only one party discloses confidential information to another such as Employer-employee agreement, Seller-buyer agreement, Inventor-evaluator agreement, and Company-contractor agreement.
  2. Bilateral non disclosure agreement or Mutual non disclosure agreement:
    In this type of agreement, information is disclosed by both parties and both the parties sign an NDA to protect each other's confidential information. For example in the case of Mergers, Acquisitions, Takeovers and Joint Ventures etc, bilateral NDA is signed.
  3. Multilateral non disclosure agreement:
    In this more than two parties are involved where disclosed information is protected by all the parties (other than the disclosing party) signing the agreement. This happens only in case of heavy deals.

Nature of Information Protected
All the information related to the business of the disclosing party, i.e. Development plans (upcoming products, ventures, deals), Business operations (strategies and procedures, relationship with other entities, information about contracts with inventor, vendor, trade secrets, manufacturing capacity, techniques, services, technical information, merchandise operations), Information related to Intellectual property(any copyright, patent, any invention, formulas, prints, research and development, results of research).

Accounting information balance sheets, cost information, information about company's profit and loss, total expenses, any penalties), Customer information( prospective customers, customer's contact information,) is protected in the NDA to reduce the risk of leakage. Any information which is already present in the public domain is not protected. To save the company's reputation, it is essential to protect sensitive information.

A Non Disclosure agreement is signed in various situations. For example when a startup is pitching to an investor, it needs to share information about their business for getting investment and NDA plays an important role here. Other examples such as while entering into a business deal, while entering into asset purchase agreement, taking advice in the company matters from experts, or taking a legal opinion of a lawyer, in case of recruiting, while discussing any matter with contractors, researchers, suppliers on any confidential matter, information about the product or any new project is yet to be launched.

Breach of non disclosure agreement
When any provision of a non disclosure agreement is violated, the party who violated it is subject to the penalties mentioned in the agreement. Penalties vary according to the nature of information disclosed. Usually monetary damages are given to the aggrieved party, but in case sensitive information is shared with a third party (which is not specified in the agreement), the party breaching the agreement is sued in accordance with the jurisdiction clause mentioned in the agreement itself.

Employees that violate the Employer-Employee NDA risk having their employment terminated and facing financial fines. In such NDAs, an employee is under obligation to protect the information for a specific period even after he leaves the job.

Importance of witness
Presence of a witness is not a pre-requisite condition for a non disclosure agreement to be legally binding. However, the presence of witnesses changes the scenario. In the presence of a witness, the Limitation Period extends to 12 years. Whereas, when NDA is signed without witness, the aggrieved party had to take action against the other party for violating the provisions mentioned in the agreement in 6 years. Beyond this, the aggrieved party cannot take any legal recourse.

Benefits of signing a Non disclosure agreement

  1. Building business relationships:
    A Non Disclosure Agreement gives confidence to the party to share sensitive information about their business. As the NDA requires the other party to preserve the trade secrets of the party disclosing the information, the latter party can be reasonably certain that its information is protected. As a result, NDA facilitates the quick and efficient development of business connections while maintaining the protection of individual interests. Without an NDA, parties run the risk of losing their reputations, their distinctive way of doing business, and there won't be any rivalry if everyone in the industry is aware of each other's tactics.
  2. Limits the use of disclosed information:
    The disclosing party can limit the use of information by the other party and specify circumstances where the receiving party can use the disclosed information, so as to maintain its confidentiality. It gives surety to the disclosing party that the information is not misappropriated.
  3. Repercussions in case of disclosure:
    When the receiving party discloses the information, it is subject to the legal consequences as mentioned in the agreement. Penalties serve as a dissuasive factor that prevents the receiving party from breaking the terms of the NDA.
  4. Preserving essential affairs:
    In case of Bilateral NDAs, both parties are assured that their information is secure and they can build further commercial relationships with each other. NDA stimulates growth of both parties simultaneously.

Stamping, Notarization, Registration
Documents are made more authentic and easily admissible in court by the stamping, notarization, and registration processes. This makes it simpler for the disclosing party to seek compensation and more challenging for the other party to retract their statements and conduct. Receiving party could claim they did not sign the contract to defend themselves in the absence of stamping, notarization, or registration.

It makes the legal document admissible. In the case of a company, it is printed on the company's letterhead and signed by both the parties. The stamp duty may vary state to state.

Parties can register the signed NDA under the Registration Act of 1908. The rules and fees for registration may vary from place to place.

Notarizing means when the notary himself acts as witness of the contract. Notarization builds authenticity of the document. It creates a legal obligation on the parties signing the contract to fulfill their responsibilities.

So, it is advisable to print a NDA on stamp paper, register it and get it notarized.

A Non-Disclosure Agreement plays an important role in business transactions. Gradually, it is also gaining popularity in various fields such as fashion, medicine etc. It is a kind of mutual promise of both the parties not to misappropriate the disclosed information. Thus, it should be drafted carefully so as to avoid the risk of leakage.


Award Winning Article Is Written By: Ms.Shobita
Awarded certificate of Excellence
Authentication No: AP311728016298-27-0423

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly