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As the name suggests, a Non-Disclosure Agreement (NDA) is a document which primarily governs the relationship between the parties during the pre-contract negotiation stage. Frequently executed as a standard template, an NDA is often not given the attention of being a necessary contract documentation, despite the fact that the NDA is a legally binding contract that establishes a contractual relationship to protect confidential information, know-how, trade secrets etc. exchanged between the parties to the agreement. NDA is also addressed as a Confidentiality Agreement (CA), Confidentiality Disclosure Agreement (CDA) or Secrecy Agreement.

The aim of this article is to acquaint and familiarise ourselves with the important aspects of an NDA, its needs, related legal principles and precedents that help understand how NDAs can be effectively leveraged for business, through a series of questions and answers.

When is it apt to execute an NDA?

An NDA can be signed when one party proposes to share confidential information relating to their trade or business, operations, products and/or services and ensure that the other party does not use it without approval or outrightly steal it. The need to execute an NDA may also arise while executing a contract appointing employees, consultants/experts or contractors for any sensitive projects, exploring prospective business deals, joint ventures, acquisitions or mergers wherein sharing of trade secrets, intellectual property and client-sensitive information is likely between contracting parties.

Why is it beneficial to enter into an NDA?

A confidentiality clause in an NDA clearly defines what exactly is the ‘confidential matter’ for which the NDA is entered into and the timeline till when a receiving party is obligated to maintain its secrecy. It is a legally enforceable document that can be used to enforce rights and claim compensation towards damages suffered by it, in the event the receiving party or its beneficiaries breaches the agreement.

Now let’s understand the different types of NDA!

What are the types of NDAs?

NDAs can be unilateral, mutual or multilateral.

1. Unilateral NDA: This is a one-way agreement, where only one party (i.e., the disclosing party) anticipates disclosure of confidential information to the other party (i.e., the receiving party) and requires that the information be protected from further disclosure.
2. Mutual NDA: This is a two-way agreement, also referred to as bilateral NDA, where both parties anticipate disclosing information to one another and each intends to protect their information from further disclosure. This approach is intended to make the provisions in the NDA relatively “fair and balanced” by introducing the possibility that a receiving party could later become a disclosing party or vice versa, which is a common occurrence.
3. Multilateral NDA: This pertains to a transaction involving three or more parties, where at least one party expects to share confidential information with the others, and necessitates safeguarding the information from any additional disclosure. With this type of Non-Disclosure Agreement (NDA), there is no requirement for individual unilateral or bilateral NDAs to be signed.

What are the elements to be kept in mind while finalising an NDA?

NDAs may be customised/tailor-made for any situation. In general, there are a few elements considered essential for any NDA:

1. Description of parties: Every NDA must specifically describe the parties executing the same. It could be an individual and/or any entity such as a company, firm, LLP etc., including their affiliates, assigns or part of group companies which may be involved in the exchange of confidential information. The details of parties entering into an NDA should be clearly mentioned.
2. Effective date: The date from which the provisions of the agreement shall be binding on the parties should be mentioned in the NDA.
3. Purpose: The NDA document should comprehensively state the intention of the parties entering into the agreement.

4. Definition of confidential information– This should be drafted keeping in mind the purpose of the NDA. It needs to be an all-encompassing definition covering both verbal and non-verbal information. Usually, confidential information is also subject to certain exceptions.
5. Appropriate use of information by the third party: This clause seeks to bind the party receiving the information to ensure that further disclosure of confidential information to third parties should be backed with a confidentiality commitment from third parties to keep the said information secure. Hence, it is important to identify the person(s) who shall be receiving the confidential information for and on behalf of the receiving party.
6. Term: Every NDA is unique and its term depends on the nature and sensitivity of confidential information, purpose, industry and the relationship of the party with whom the information is exchanged.
7. Miscellaneous clauses:
   1. Dispute resolution and jurisdiction – This clause determines the dispute resolution mechanism (mediation/arbitration/civil suit) and the courts that shall have jurisdiction for the interpretation and enforcement of the clauses included in the NDA.
   2. Return of confidential information on expiry or termination of the NDA- This clause specifies the manner and time within which the receiving party is expected to either return or destroy the information received under the NDA.
   3. Consequences of breach and reliefs – The breach of any clause in the NDA by the receiving party may lead to the disclosing party suffering heavy damages and/ or losses. Accordingly, injunctive reliefs can be sought by the disclosing party seeking to restrain the receiving party from continuing an act of breach and seeking compensation for damages and/ or losses suffered due to unauthorised disclosures by the receiving party.

Would you like to dive deeper into the aforesaid elements? Continue reading to find out which information can be protected under NDAs, what remedies are available in the case of a breach and so much more!

References:

https://www.barandbench.com/columns/breach-of-confidentiality-maintenance-covenants-amid-covid-19-concerns-and-remedies
https://www.hg.org/legal-articles/what-are-non-disclosure-agreements-in-india-55516
https://vaishalibhagwat.com/publications/non-disclosure-agreements/
https://www.investopedia.com/terms/n/nda.asp

Disclaimer: The information, statements and opinions contained in this content are of a general nature only and do not take into account your individual circumstances including any laws, policies, procedures or practices you or your employer or businesses may have or be subject to. Although the statements of fact on this page have been obtained from and are based upon sources that L&T EduTech believes to be reliable, it does not guarantee their accuracy or completeness.

ADITI CHAVAN

Author

With over 15 years of experience as a legal professional, Aditi holds a strong academic foundation with Bachelor’s degrees in Science (BSc) and Law (LLB). She furthered her legal education with a Master’s degree in Constitutional Law (LLM) and specialised in areas like Intellectual Property Rights (IPR), Alternate Dispute Resolution (ADR) and Arbitration laws.

During her career, Aditi handled diverse litigation and non-litigation matters for clients in FMCG, Pharma, IT and more. For 11 years, she served as Assistant General Manager (Legal) for the Kalpataru Group, overseeing all legal issues related to their Real Estate Division. In July 2022, Aditi joined L&T Construction as a Senior Manager (Legal), where she provides independent legal counsel to the company, particularly concerning projects in the Western Region.