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This article is written by Gauri Atreja, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Aatima Bhatia (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

Any business that transacts with other persons or businesses must exchange trade secrets, sensitive information collected from clients, or market data that they want to keep hidden from competitors. All of this information must be safeguarded. It is critical that workers of the corporation, as well as anyone involved in the company’s business dealings, do not reveal sensitive information about the company’s operations.

How can a company ensure that its trade secrets and business transaction data are safe and secure and that no one involved in the company’s dealings learns about them? To safeguard the secrecy of its business dealings and trade secrets, a smart business corporation usually requires its employees and business associates to sign a non-disclosure agreement. This article seeks to shed light on the details surrounding Non-Disclosure Agreements.

What is a non-disclosure agreement (NDA)?

A non-disclosure agreement is a legally enforceable contract that creates a confidential connection between two parties. The signatory party or the parties to the agreement agree that any sensitive information they collect will not be shared with anyone else. A confidentiality agreement is another name for an NDA.

Non-disclosure agreements are frequently used by businesses when negotiating with other businesses. They make it possible for parties to transmit sensitive information without danger of it falling into the hands of competitors. It’s termed a mutual non-disclosure agreement in this scenario.

What is the need for NDA?

In a variety of scenarios, an NDA is useful. When two companies explore doing business together but wish to preserve their individual interests and the terms of any potential deal, NDAs are usually required. In this scenario, the NDA prohibits all parties involved from disclosing anything about the other party’s or parties’ business procedures or goals.

Some organisations may ask prospective employees to sign a non-disclosure agreement (NDA). If the employee has access to critical company information.

Before conversations between a company seeking capital and possible investors, NDAs are frequently employed. The NDA is intended to protect competitors from learning about their trade secrets or business strategies in these situations.

NDA

What are the requirements of an NDA?

NDAs can be tailored to any extent, however, there are six key aspects that must be included:

  • The names of the contracting parties.
  • A definition of what constitutes confidential information.
  • Any exceptions to the rule of confidentiality.
  • A statement describing how the information to be revealed should be used.
  • The time periods in question.
  • Provisions of a different nature.

Defining “Provisions of a different nature”

The last “Provisions of a different nature” item could include information such as the applicable state law or laws, as well as who pays attorney fees in the event of a dispute.

What happens if you breach a non-disclosure agreement?

If you violate an NDA, you will be subject to the contract’s terms and conditions. Breaking an NDA is not a crime in and of itself; but, depending on what was violated, it may be, such as if trade secrets were stolen. If a person violates an NDA, they will usually be sued, which could result in a monetary fee, termination of employment, or the return of an asset, depending on the terms of the agreement.

How long does a non-disclosure agreement (NDA) last?

Because each NDA is distinct, it will last for a different amount of time. An NDA is usually for a period of one year to ten years, although it might be indefinite depending on the information that needs to be kept hidden.

What information is protected under NDA?

A non-disclosure agreement might protect information that isn’t in the public domain or isn’t widely recognised. It can protect any type of private business information, such as a new restaurant concept, a new business endeavour, or any other type of confidential business information that could be valuable to others if disclosed.

A non-disclosure agreement would ideally define the parameters under which material should not be shared. The information included within these bounds is intellectual property, which includes copyrighted content, possibly patentable innovations, trade secrets, formulas, techniques, compositions, compounds, plans, and blueprints, among other things. It could also comprise a company’s customer list, prospective consumers, business relationships and affairs, and so on, all of which are referred to as proprietor’s information. A company’s reputation can be irreparably damaged if such information (especially trade secrets) is leaked.

In an employer-employee relationship, a non-disclosure agreement is generally accompanied by a non-compete agreement, under which the employee is prohibited from disclosing the information not only during the employment period but also for a specific period after the job ends.

What are the uses of NDA?

A non-disclosure agreement is beneficial to multinational corporations, but it is also beneficial to small businesses, partnerships, individuals, and, most importantly, start-ups, because all of them must deal with outsiders and entrust confidential information to them at some point in their business.

A start-up can be anything; an idea, a business plan, a patented innovation, or anything else. A startup can’t keep these ideas to itself; it needs to share them with investors who might be able to help turn the idea into a success. In the case of a patentable invention, the inventor may want the opinion of an expert in that field, and in the case of a business idea, the person coming up with such an idea may need a lawyer to register the business organisation, so having a non-disclosure agreement signed with those outsiders ensures that the information is not leaked to s. (owner of the information).

In industries like film and television, a non-disclosure agreement can be quite valuable. So, if you work in a sector that involves a lot of intellectual production, you may be obliged to sign an NDA on a regular basis, and you may be required to demand others to sign one as well. Also, one of the most recent areas where the concept of NDA has gained traction is the fashion business, which may now demand participants to remain silent for a set period of time or until the collection is unveiled. As a result, an NDA may be the best way to protect the information you don’t want many others to know.

What are the exceptions to NDA?

An NDA ensures that your information is kept private and secure, however, there may be some exceptions. For example, a person who is obligated to keep material confidential may be ordered by a court to reveal it – in this case, the valid order of the court will, of course, take precedence over the NDA’s responsibilities. Also, if the individual already has such knowledge or receives it from another source, he may not be bound by the NDA not to disclose it to anyone else. Furthermore, a question of policy or national security will take precedence over the NDA.

Does an NDA need to be stamped or registered?

Since it can be enforced in a court of law, a legal instrument, document, or contract has value. To enforce the contract, you’ll need to produce it in court to show that you (and the entity you’re enforcing it against) entered it legally, as well as that the provisions of the contract are legitimate. As a result, you must follow specific procedural rules in order to present them in court.

Stamping

Stamping is a necessary procedural formality without which your document will not be accepted in Court under normal circumstances. The stamp duty rate on a non-disclosure agreement will vary by state, but in most Indian states, it should be between Rs. 20 and Rs. 100.

Registration

A non-disclosure agreement can be registered under the Registration Act of 1908 by going to your district or city’s Sub-Office. Registrar’s The fees for the same, as well as the specific rules for registration, differ from state to state. Registration goes a long way toward confirming the authenticity of a document’s contents.

Notarization

Parties may choose to have their agreement notarized in most cases. A notary’s role is that of a witness; when a document is notarized, it means that the notary has personally witnessed the parties signing the contract. In the absence of a witness, a party could make up a variety of explanations to claim that he is not obligated by the contract’s terms. He could claim, for example, that he never signed the contract, that the signature is not his, or that his signature was forged. While there is no legal obligation in India to hire a notary for agreements, it will be useful in preventing parties from refusing to execute (sign) the contract on their own.

The cost of notarization varies depending on where you live. In Kolkata, for example, a leave and licence agreement with a monthly rent of Rs. 10,000 to 15,000 costs roughly Rs. 200.

Although registration and notarization are not legally required, they are always recommended because they make it easier to substantiate your case.

Conclusion

NDA is a contract through which the parties agree not to disclose any information covered by the agreement as entering into the agreement creates a confidential relationship between the parties obligating them to protect all confidential and proprietary information as long as such information is not in the public domain already. Use of NDAs are on the rise in India and are governed by the Indian Contract Act 1872; however for NDAs to be valid in India they need to be stamped. NDAs are highly preferred as they are low-cost, easy to create legally binding documents. When drafting an NDA, it is important to be as detailed as possible, so all parties know what can and cannot be shared as well as the consequences of leaking information. 

References


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