Protection of Confidential Information through Non-Disclosure Agreement By CS Annu Sharma



Dear Professionals,

Hope you all are doing well!

If you are running a business, or are about to start one, you know that there are numerous instances where you end up sharing confidential information with another party then this Write-Up is  only pen down for you,  To maintain a competitive advantage, businesses must keep working projects, innovative ideas, or exciting new products secret lest they fall into the hands of a competitor. Similarly, startup companies with a new and profitable idea can only succeed if what they are working on remains under wraps. That can be possible by adopting Confidentiality agreement before entering into any business transaction.

For example, a start-up company seeking to raise money from venture capitalists or other investors may fear that their good idea will be stolen in lieu of receiving an investment. Having a signed NDA legally precludes such idea theft. Without one, it can be difficult to prove that an idea has been stolen.

Non-disclosure agreements (NDA) have almost become synonymous with the protection of confidential information. This type of agreement is basically a legal contract that expressly prohibits the disclosure or use of proprietary information without permission.

Non-disclosure agreements are usually signed before parties start negotiations for:

Joint ventures

Potential licensing relationships

Distribution relationships

Independent contractor relationships

Franchising arrangements

Employment hiring situations

Merger and acquisition processes

Any other Situation of transferring Information.


A company hiring outside consultants may also require those individuals, who will be handling sensitive data, to sign an NDA so that they do not disclose those details at any point. Full-time employees may also be required to sign an NDA when working on new projects that haven't yet been made public, as the effects of information leakage could damage the value of the project and the company as a whole.

Following are some major benefits of entering into an NDA –

It helps in maintaining the utmost secrecy between the parties by binding them legally through various clauses constituted under the Non-Disclosure agreement. This prohibits the receiving party from disclosing the confidential information.

A Non-Disclosure Agreement is legally binding and thus the party infringing the agreement would be legally liable to compensate the damages to the aggrieved party (which is mostly the disclosing party).

A Confidential Clause in the Non-Disclosure Agreement clearly defines what exactly is the ‘confidential matter’ for which the Non-Disclosure Agreement is entered into.

Various clauses of the Non-Disclosure Agreement also draw the timeline up to which the party is obliged to maintain the secrecy. This period could be beyond the effective period of the NDA itself.

The dispute can be referred to the Arbitrator or even taken to the court if the level of violation demands. That’s how the owners of the confidential information is granted relief as they have taken effort to safeguard the shared confidential information through the Non-Disclosure Agreement.

A Non-Disclosure Agreement is governed by the Indian Contract Act, 1872 and according to it a Non-Disclosure Agreement (NDA) is a legally binding contract. To ensure the further validity and enforceability of the Non-Disclosure Agreement, it is suggested to stamp the NDA.


A few of the major elements of an NDA include (not limited to the following):

  1. Identification of the parties that are signing the agreement 
  2. A precise definition of what is considered confidential under the agreement 
  3. The clear reason as to why the information is shared and for what purpose 
  4. An elaborated explanation as to how the shared information can and cannot be used 
  5. Explicit information about the timeframe or the duration of the agreement

# IS IT MANDATORY TO PRINT A NON-DISCLOSURE AGREEMENT ON A STAMP PAPER?

It is not mandatory to get an NDA printed on a Stamp Paper. An NDA can be printed on a letterhead of the company and signed by the parties on both sides of each page of the NDA

If you choose to print the NDA on a stamp paper, get it printed on a non-judicial stamp paper or e-stamp paper (available in certain states). Have the NDA signed in the presence of witnesses? After this you are required to get the NDA Notarized.

It is not mandatory to Notarize or to have the Non-Disclosure Agreement signed by Witness. But to ensure the further validity and enforce ability of the Non-Disclosure Agreement parties may choose to have witnesses sign the NDA and enact the validity of the document so that it cannot be questioned in the court of Law.

JURISDICTION PLAYS VERY IMPORTANT ROLE WHILE DRAFTING ANY AGREEMENT:

Jurisdiction clause determines the courts of which city shall have jurisdiction over the Non-Disclosure Agreement in case of dispute between the parties. Thus, it is very important to mutually agree and specify in the NDA that courts of which city will have jurisdiction over the dispute and the infringed agreement.

It is more vital to specify the Jurisdiction where the person from the foreign country is a party to the contract, else it could be a hugely expensive court fight!

Make Sure always draft agreements by mentioning local courts jurisdiction.

PENALTIES ON BREACH OF NDA

The penalties over the breach of the agreement are generally specified in the agreement itself and the breaches or infringement are accordingly dealt with. If in any agreement the penalty is not specified, it is clearly mentioned that the person guilty of violation or breach of contract shall be sued for such misappropriation. If the Non-Disclosure Agreement has an Arbitration Clause, the party may also refer the dispute to an Arbitrator and can get the dispute settled.

CONCLUSION

There are only two basic canons to fall back on when dealing with NDAs: firstly, if there is a lack of trust between the concerned parties, the right decision if to not go ahead with the NDA. Yet, often an NDA is the logical first step to nurturing and growing trust, leading to further collaborations. Secondly, when forming an NDA with another party, it is integral to make sure that the entirety of organizational workers with access to confidential information are completely informed, regarding their confidentiality commitments.

With this, you are all set to safeguard your business and its details by drafting a quality NDA in place. NDA comes under the bouquet of the little things that build the prerequisites of any successful business.

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