It is not the National Democratic Alliance or the National Defence Academy, I am talking about a Non-Disclosure Agreement. On a serious note, an NDA is a legally enforceable contract which establishes a confidential relationship between the holder of confidential information and the party that intends to receive such information.
This legal definition can be broken down to three important parts i.e.
- Legally enforceable contract
- Confidential Information
- Information to be shared
In simple words, a Non-Disclosure Agreement is a legal document establishing rights and obligations on the holder of any sensitive or valuable information to the receiver of such information.
Not all information can be categorized as confidential information, there are certain kinds of information that may not be considered as confidential information and will become exceptions to NDAs.
Exceptions to Confidential Information
- Information generally available to the public through no breach of contract.
- Information known to the receiver before the sensitive information was revealed to him/ her.
- Information obtained by the receiver through a third party who is not under any confidentiality obligation to not disclose such information.
- Information independently developed by the receiver.
Situations where an NDA becomes important?
There are only two situations when an NDA becomes absolutely important, they are:
- When you have information you can put to your use or can be used against your interests
- When that information has to be shared with anyone else who can benefit out of such disclosure or harm the interests of the disclosing party.
However, it is advisable to sign an NDA in order to protect your interests in basically all situations where the information that you are disclosing to a third party is of any value or can be used to add value to your brand, product, or organisation.
What should an NDA contain?
- Confidential Information – What can be categorized as confidential information? Any information that is being disclosed and is capable of benefitting the receiver of such information or any third party who may benefit out of such disclosure must be categorized as confidential. Such information must be protected and has to be defined in the agreement or at least it should be indicated as to what information is to be considered confidential. On the other hand, if the information hasn’t been specified in a well-defined manner, it might result in the agreement becoming unenforceable due to the information being too trivial or being freely available to the public.
- Parties – The agreement should have the relevant parties to the contract and to what extent each of them are bound by it. There can also be parties that are restrained conditionally or parties who may not ultimately even obtain the information (in cases where a party has to only take reasonable care to protect the information without even having it).
- Term of the Agreement – The term governs the time period up to which the agreement will be valid and applicable. It can either be a fixed or an indefinite period also, depending on the sensitivity of the information. When going ahead with an indefinite period, the party should take care that it doesn’t become a liability for them.
- Enforceability – An agreement on the basis of its enforceability can be either prospective or retrospective. Retrospective applicability means that an agreement can be made applicable on the parties even before the agreement was entered into. So, if the parties wish to, they can restrict themselves from disclosing sensitive information that had been revealed to them in the past.
- One-way or Two-way – A NDA can either have the non-disclosure obligations on only one party or such obligations can also flow both ways. It is not always necessary that only one party to the agreement is disclosing the information. Sometimes, both or all parties to the agreement can disclose sensitive information to the others in order to discharge their duties. It is not necessary that one party provides the information and the other is responsible for protecting it and not disclosing it. Both the Parties can be holders of sensitive information and due to the mutual exchange, there is mutual liability on both of them to safeguard such info.
Legal framework behind enforceability of NDA
In India, a Non-Disclosure Agreement is valid, and can be enforced only when it is registered under the Registration Act 1908.
The NDAs are executed between companies, people or entities under which one party is prohibited from revealing the confidential information of the other party within a specific period of time and if the party does so then the other party may sue for damages suffered because of the breach of confidentiality.
The Courts have on several occasions determined the validity of an NDA with respect to Section 27 of the Indian Contract Act. The Supreme Court has drawn an extremely narrow construction of Section 27 of the Indian Contract Act (which deals with restraint of trade), firmly rejecting the common law doctrine of reasonability. However, the Bombay High Court in December 2007 in V.F.S. Global Services Ltd. v. Mr. Suprit Roy has toed the line drawn by the Apex Court and held that a clause prohibiting an employee from disclosing commercial or trade secrets was not in restraint of trade, if such agreements or clauses do not restrain parties from exercising a lawful profession, trade or business within the meaning of Section 27.
Thus, though the Indian position on this aspect has been consistent, it has nevertheless witnessed strong criticism on more than one count. While the Bombay High Court pronouncement introduces much needed protection to trade secrets by taking it out of the ambit of restraint of trade, nevertheless much ground needs to be covered in order to ensure security to trade secrets. The Bombay High Court in the aforementioned case had the chance to do just this. Therefore, it is has been an important step in this regard, but needs to be developed further.
Development in trade and commerce also requires the equal protection of rights to the widest possible extent. A non-disclosure agreement surely does the same by protecting valuable information of any company or individual from being leaked or used against him for the purpose causing loss to the primary party or owner of the information. NDA acts as a protector of original ideas or models or any kind of information which is beneficial or important to its owner.
So, it is safe to say that an NDA is your fail safe legal document that will protect you from nasty experiences at a time that you would least expect it. An NDA might always not be for the benefit of everybody. It will definitely be harmful or will be a speedbump in the well-oiled plan of a rogue or a trickster who wants to take advantage of a hardworking holder of sensitive information. It obviously takes a lot of extra work and expenses (from both parties) to get an NDA drafted or tailor-made, but all that work and money will be a waste, for someone who doesn’t intend to keep the information confidential.
Thus, an NDA doesn’t restrict your options; rather it redeems you and your rights when you most need it. It may seem like the agreements are pointless, or the costs involved with drafting such agreements might be unnecessary; but it’s always better to have that sort of insurance in case you end up on a sticky wicket further down the line. As with any other domain, it is best to seek professional advice that is tailored to your situation. At Ediplis Counsels, we offer a full range of agreement drafting, review, and vetting services.