Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement is a contract which enables the parties to the contract from sharing any piece of confidential information or knowledge shared between them for the purposes of business or any other kind of access but restricts such sharing to any third party to such contract. 

There are two types of NDA in practice:

 One-way NDA – Casts the obligation of non-disclosure of information on one party only;

 Two-way or Mutual NDA – Obligation on all the parties to the NDA.

Terms & Conditions of one-way and two-way NDAs are same for both with the only difference that in the latter, the obligations apply to all the parties to the contract.

General Terms & Conditions required in an NDA

• Confidential Information and its scope to be defined;

• Obligation of Non-Disclosure of the information to any third party without the permission of the party sharing such information;

• Application of NDA to apply to all the employees and directors of the recipient company;

• Exclusions/Exceptions to NDA for sharing the information to a third party;

• Notice of any unauthorized disclosure or loss is to be sent by the legal recipient of such information to the other party;

• Use of Confidential Information is to be “As is” and it is not be construed as a license or assignment of such information or any intellectual property. Moreover, the recipient is prevented from selling or registering such confidential information without prior authorization of the other party;

• No reproduction of such information without the authorization of the providing party;

• Time duration of the contract;

• Action was taken upon breach of the contract and Injunctive Relief;

• Governing law to be mentioned;

• Dispute Resolution mechanism to be stated;

• No Assignment to be carried out by the recipient without the authorization of the other party.

Statutory Law References

Sec. 2(h) of the Indian Contract Act, 1872.

Art. 39.2 of WTO Agreement on TRIPS.

Important Judgments

• John Richard Brady and Ors v. Chemical Process Equipments P. Ltd. and Anr, AIR 1987 Delhi 372.

• Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors, 97 (2002) DLT 257.

Important Do(s) & Don't(s)

• Lawyer consultation or online legal advice is preferable to remove any illegalities and ambiguities;

• The information is to be protected for eternity, even after the expiration of the contract unless authorized by the disclosing party;

• Insert a stringent penalty clause;

• It is preferable to have a two-way NDA as it keeps the information flow and protection balanced.