What is a NDA?
Non-disclosure agreement (NDA), also known as a Confidentiality Agreement (CA) or Secrecy Agreement (SA), is a legal contract or part of a contract between at least two parties that outlines and defines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to third parties. NDAs can be “mutual”, meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party.
Types of NDA
A unilateral NDA (one-way NDA) involves two parties where only one party (i.e., the disclosing party) anticipates disclosing certain information to the other party (i.e., the receiving party) and requires that the information be protected from further disclosure.
A bilateral NDA (mutual NDA or two-way NDA) involves two parties where both parties anticipate disclosing information to one another that each intends to protect from further disclosure. This type of NDA is common when businesses are considering some kind of joint venture or merger. When presented with a unilateral NDA, some parties may insist upon a bilateral NDA, even though they anticipate that only one of the parties will disclose information under the NDA. This approach is intended to incentivize the drafter to make the provisions in the NDA more “fair and balanced” by introducing the possibility that a receiving party could later become a disclosing party or vice versa, which is not an entirely uncommon occurrence.
A multilateral NDA involves three or more parties where at least one of the parties anticipates disclosing information to the other parties and requires that the information be protected from further disclosure. This type of NDA eliminates the need for separate unilateral or bilateral NDAs between only two parties.
When to sign NDA?
- In 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 or consultant for a sensitive project
- While dealing with sensitive client information
- While discussing commercially sensitive information with other party
- Kickback agreements
- Trade secrets
- Joint venture agreements
- Protection of Intellectual property rights
Benefits of entering into an NDA
- A Confidential Clause in the NDA clearly defines what exactly is the ‘confidential matter’ for which NDA is entered into.
- It helps in maintaining the utmost secrecy between the parties by binding them legally through various clauses constituted under the NDA. This prohibits the receiving party from disclosing the confidential information.
- Various clauses of the NDA also draw the timeline upto which the party is obliged to maintain the secrecy. This period could be beyond the effective period of the NDA itself.
- NDA is legally binding and thus the party infringing the agreement would be legally liable to compensate the aggrieved party for damages suffered.
Some important Clauses in the NDA
Definition of Confidential information
Every kind of information to be shared and kept secret by the receiving party has to come under this heading so that the dispute in future can be avoided. Confidential information should be defined accurately and specifically to avoid misinterpretation or confusion. This clause clearly spells out what information is not to be disclosed.
• The information which is in or has come into the public domain otherwise than through a breach of this Agreement or fault of the other Party.
• The information which has been approved for its use or release by prior written permission of the other Party.
• The Confidential Information is required to be disclosed by any Statutory Requirement or Application of the Law or by the Court’s Order.
• The disclosed information doesn’t come under the definition of Confidential Information.
• The information was independently developed by other parties without making use of the Confidential Information.
Duties and obligations
- Undertaking not to disclose the Confidential Information directly or indirectly to any third party without the prior written permission from the other Party.
- To disclose the Confidential Information only to the concerned consultant and employee on the need to know basis and by executing an appropriate written NDA with them.
- To protect each other’s Confidential Information in the same manner and degree as they protect their own Confidential Information.
- To take due diligence to protect and safeguard the integrity of the Confidential Information and to protect it from unauthorized disclosures
- To promptly inform the other Party of accidental disclosure of any Confidential Information and together take steps to retrieve and protect such Confidential Information.
- To use the Confidential Information only for the purpose of the proposed transaction.
- Injunctive relief is a remedy which restrains a party from doing certain acts or requires a party to act in a certain way. The purpose of this form of relief is to prevent future wrong. Such orders maybe issued under provisions of the Specific Relief Act, 1963 and the Civil Procedure Code
- Suit for Damages In circumstances where a receiver of the information has already breached the non-disclosure agreement, the provider of the confidential information may file a suit for recovery of damages under relevant provisions of the Indian Contract Act, 1872.
- Penal remedies
- Section 72(A) of IT Act liable to imprisonment extending to two years or fine extending to one lakh rupees, or with both.
- Section 408 of IPC for criminal breach of trust
Some Relevant Case laws :
- Homag India Private Ltd v. Mr Ulfath Ali Khan & Other M.F.A.No.1682/2010 C/W M.F.A.No.1683/2010 (CPC)
The Plaintiff was an Indian subsidiary of an international MNC group, and its business focused on providing machines, cells and factory installations for the panel processing furniture, structural element and timber frame house construction industries. The first defendant joined the services of the plaintiff as a Senior Service Engineer. After joining services of the plaintiff’s company, the defendant was given two promotions in the year 2009. In the course of employment, the defendant had access to confidential information of the plaintiff’s business. The first defendant had submitted his resignation on 25.03.2009 and requested the plaintiff to relieve him from employment on the grounds that he had received better employment with the second defendant.The plaintiff discovered that the defendant had sent several e-mails from an official e-mail address containing confidential information to the second defendant. These e-mails contained customer details including added updated commissioned reports, the status of pending offers and other technical details of plaintiff’s products. The defendant subsequently confessed this in an affidavit.
The court held that the second defendant colluded with the first defendant and had the intention to set up a rival private limited company in India. It was the intention of the Second defendant to appoint the first defendant as the Director of Sales and Service of its Indian entity. It was agreed between defendants till such a company is established, the first defendant would be an employee of the Plaintiff.
The injunction was accordingly granted, preventing the use of the plaintiff data.
It was asserted by the defendant that the names of customers, their phone numbers and addresses are well known and can easily be ascertained by anybody and such information cannot be characterised as trade secrets or confidential information. It was further contended by the defendant that she had built the relationship with all her clients and obtained the data from the directories of the various organizations to solicit the customer for the plaintiff while working for them. The bank does not have any proprietary rights on these relationships, and the clients are not bound by any arrangement of exclusivity with the plaintiff bank. In the circumstances, it was averred that the relief claimed against the defendant is nothing but an attempt to injunct the clients shifting their accounts from the plaintiff and to restrain the defendants from dealing with the clients.
The court held that the plaintiff had not produced anything which would show that they have done something with the material which is available in the public domain to claim exclusive rights in that. Moreover, whether the restraint is total or partial, unqualified or qualified, the agreement is void if it is in control of trade.
The perpetual injunction demanded by the plaintiff was denied.
- Sandhya Organic Chemicals Pvt Ltd & Ors v. United Phosphorus Ltd & Anr AIR 1997 Guj 177 The appellant in this case ( original defendant) has preferred an appeal against the order of the trial court granting an interim injunction which restrained the appellant from adopting, using and resorting to in any manner whatsoever form the new process as invented by the Respondent( original plaintiff) for the manufacture of AIP and ZnP and from selling such products in the open market or secretly and from divulging, passing on any information, documents, drawings descriptions etc. to any other person, corporation, agents, servants body corporate etc. The said order was challenged in this appeal.
It was the case of the plaintiff that while under the employment, the defendant no 3 has covenanted not to divulge any confidential and secret information acquired during employment. The covenant extended beyond the period of employment. It was further stated that since it was the know-how acquired during the employment process which has helped the defendant to manufacture AIP and ZNp form using white phosphorus instead of red phosphorus, it was a breach of the confidentiality by the defendant no 3.and it was further pleaded that the agreement was not affected by section 27 of the in view of the cause of action on common law and equity.
The defendant averred that The trial Court has failed to appreciate the ingredients of Order 39, Rules (2) and (3) of the CPC. The trial Court, by granting the interim relief, has virtually decided the suit without a trial. The plaintiff has no proprietary interest in the nature of a registered trademark, which would enable it to sue and obtain an injunction in the terms in which it has been granted by the trial Court. In view of the provisions of the Patents or Designs Act. Unless a patent or a design is registered in respect of an invention, there is no proprietary right of which the plaintiff can complain of and ask for relief in the nature of the injunction. The said covenant of the defendant no 3 was void under section 27 of the India Contract Act 1872.
The court held that a service covenant extending beyond the termination of service is void. While doing so, the High Court was fortified by the judgement of the Apex court in Superintendence Company of India Vs Krishan Murgai 1980 AIR 1717, 1980 SCR (3)1278.
Accordingly, the ad-interim injunction grant by the trial court was vacated.