Most important clauses in a Confidentiality Agreement

April 12, 2018
Confidentiality Agreement

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In this Article, Pallav Gupta pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the important clauses in a Confidentiality Agreement.


Behind every new startup company, there is an idea. But before that idea is presented to the world, it is very necessary to protect that idea from potential competitors in the market. Even the big companies have to protect their trade secrets and certain other information which could exploit their intellectual property. For specifically protecting that aspect, a Confidentiality Agreement comes into the picture. 

Confidentiality Agreement

A Confidentiality Agreement which is also known as a Non-Disclosure Agreement, in simple words, is an agreement between two parties where one of the parties is bound to not to disclose any kind of information being provided or shared by the other party to the first party. Non-Disclosure Agreements (NDAs) are agreements signed between two entities in writing that confidential information is being passed from one entity/person/company to another, the nature of the information, the purpose and most importantly an undertaking from the person receiving the information not to reveal it to anyone for a specified period of time. In India, there is no such statutory enactment for its applicability and its enforceability but it is governed under the Indian Contract Act, 1872.

For example:

This agreement in its inception can be of two folds where it can be unilateral and bilateral. A bilateral confidentiality agreement will be when both the parties entering into the agreement have certain information to share or disclose to each other and in the unilateral confidentiality agreement, it will be the only party who discloses or shares the information.

Kinds of information which can be protected under the Confidentiality Agreement

Not every kind of information can be protected under a confidentiality agreement. If a certain piece of information has already been made public or that information amounts to the public knowledge then that information cannot be asked for to be protected. Just like a new intellectual property that information is necessary to be original, novel or inventive. For example, there is a dispute between the parties regarding the disclosure of the information, and the accused party is able to show to the court that they had the same information prior to the signing of the same agreement, the court can make them not accountable for disclosure of the information in the same case.

Types of Confidentiality Agreements

Unilateral Confidentiality Agreement

Under this kind of agreement, there is only one party out of the two parties to the agreement whose information is required to be protected. The kinds of agreements which fall under this category are employer and employee or client and vendor. Almost every employment agreement these days has a clause of the confidentiality clause, rather than having a separate agreement.

Bilateral Confidentiality Agreement

Under this kind of agreement, both the parties to the agreement disclose the information to each other and both the parties are required not to disclose the information. For instance in the case of a joint venture, If a chip manufacturer knows about the top-secret tech going into a new phone, they may be required to keep the design a secret. In the same agreement, the phone manufacturer may be required to the keep the new tech in the chip secret as well[2]. Bilateral or two-way confidentiality agreements are less likely to contain such provisions which can come out to be one-sided.

Uses of a Confidentiality Agreement

Important Clauses in a Confidentiality Agreement

Definition of “Confidential Information”

The first clause becomes the essence of the agreement as to what exactly comes under the confidential information. As explained above as well, that information which would be in the knowledge of the party receiving the information or that information which amounts to public knowledge cannot be covered under this category. Every kind of information has to come under this heading so that the dispute in future can be avoided under any circumstance. This clause can also contain the manner in which the information will be shared with the receiving party.

Description of the Parties

It is not necessary to include this as the clause but it is the requirement of every agreement that there should be the proper description of every party to the agreement along with their respective full initial and registered address.

Duration/ Term of the agreement

Use of Information

Some owners of the information feel that the receiving party should be able to access to every piece of information they are able to perceive while working with the first party. Whereas, the other owners might think of limiting the criteria for usage of the confidential information. It depends upon the requirement of the company to company. For example, at the time of Merger and Acquisition, if there is a confidentiality agreement between the parties before entering into the said transaction, the company can only be entitled to use the information required for the purpose of evaluation.

Obligation to disclose

This clause is mentioned in almost every confidentiality agreement because there are certain circumstances wherein the party can be bound to disclose the information. This can happen in the case when there is any administrative or legal authority can ask the party to disclose the information. For example, if there is an investigation going on by Customs Department, then the party is bound to disclose that information to those officials.

Return of the Information

Generally, after the time frame mentioned in the agreement has lapsed, the receiving party has to hand over the confidential information along with all the material with it. It is not necessary that the party has to return the information, it can be asked to destroy the same as well, as according to the agreement between the parties, and whether the same information has to be destroyed/returned can be mentioned under this clause. The effective return of all confidential materials has become increasingly difficult with technology. In today’s age of technological advancement, it is very difficult to fully destroy such information such as cloud storage, USB drives, hard drives etc. As a result, more and more NDAs are allowing the recipients to retain some of the information for ‘document retention’ – but not accessible in the course of daily business.


Every confidentiality agreement must have this clause that in the case of breach of this agreement the primary party will have the right to proceed legally in a certain prescribed manner. The costs of a breach can be hard to calculate or prove, so a mutual agreement up front as to what constitutes a fair remedy will help you avoid a lengthy legal battle later on. This clause should include the possible consequences of a breach and explicitly preserve your right as the Disclosing Party to seek equitable remedies[5]. It is necessary that the disputes arising out of the said agreement should be resolved cost effectively and the most cost-effective option in Arbitration. His powers and appointment should be clearly defined in the said clause so that so that there is no dispute regarding the remedy and dispute resolution.


It is also very necessary to mention that which area/city will be having the jurisdiction according to this agreement to entertain the dispute arising between the parties[6].

No Binding


Non-disclosure agreements are an important legal framework used to protect sensitive and confidential information from being made available by the recipient of that information[6]. The main problem with the confidentiality agreement is the difficulty that whether all the aspects have been covered or not. This problem can arise if the said agreement has not been drafted properly in a manner which can reduce the ambiguities. This is why if the companies require a good confidentiality agreement they must consult a lawyer for that instead of copying from the internet. Bad drafting can cause the companies to enter into long litigation battles which can incur them a lot of legal costs as well. Therefore, the companies should always go for properly drafted confidentiality agreement from the professionals as it does not cost a fortune.


[1] Adam Hayes, How NDAs Work and Why They’re Important https://www.investopedia.com/articles/investing/041315/how-ndas-work-and-why-theyre-important.asp.

[2] Susan M. Heathfield, What is a Non Disclosure agreement? https://www.thebalance.com/non-disclosure-agreement-1918197.

[3] 9 clauses to include in every Non-disclosure agreement https://www.axial.net/wp-content/uploads/2014/03/Axial_9-Clauses-to-Include-in-Every-NDA.

[4] Erica Gardener 10 key clauses in every non-disclosure agreement https://everynda.com/blog/10-clauses-have-non-disclosure/.

[5] Deepshikha Ranjan, What you need to know about non-disclosure agreements https://blog.ipleaders.in/non-disclosure-agreements/.

[6] How NDAs Work and Why They’re Important | Investopedia https://www.investopedia.com/articles/investing/041315/how-ndas-work-and-why-theyre-important.asp#ixzz55ksvza1v.



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