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Non Disclosure Agreement is a confidentiality agreement or a legal contract between at least two parties outlining private information. Any information on NDA is only accessible to the parties who have signed the agreement and is restricted from access to any third parties.
To ensure that no one uses this Non-Disclosure Agreement in India against company’s interest, the company can enter into an NDA Agreement, also known as confidentiality agreement or Non-disclosure Agreement (NDA) contract or NDA document with any person it transacts with.
A company is required to share its confidential information on NDA pertaining to Intellectual Property, vendor information and other trade secrets with its employees, partners, investors, clients.
NDA is a legal document that protects any confidential information and discussions concerning the business from being disclosed to a third party.
Most business relations and transactions begin with an NDA. A Non-disclosure agreement format is either in the form of unilateral NDA or bilateral NDA. However, the intent of the contract remains protection of trade secrets.
There are two types of NDA:
Unilateral NDA - In unilateral or one-way NDA, one party discloses its information and recipient party is bound to protect that information.
Bilateral NDA - On the other hand, bilateral NDA is also known as a mutual non-disclosure agreement, where both parties disclose confidential information and both are accountable to protect that confidential information.
These types of agreements are more appropriate for joint ventures, etc. Thus, the confidentiality clause is the essence of NDA agreement.
A frequent question asked by many corporates and startups is - “Why is NDA important?”
Let us find an answer to this.
As the name suggests, it is nothing more than a contract whose objective is to safeguard any confidential information. A business should sign a non-disclosure agreement in India if it is:
Presenting a business idea or invention to a potential partner, investor or distributor.
Showing a new product or technology to a prospective buyer or licensee.
Sharing financial, marketing and other information on NDA with a prospective buyer of your product.
Receiving services from company or individual who may have access to some sensitive information on NDA in providing those services.
Cavalier treatment of the NDA could result in legal headaches for the company down the road. Businesses which are unaware of the indispensable clauses of a Non-disclosure agreement in India tend to use template or sample agreements available online, which often lack structure and cardinal stipulations.
Here are 8 important non-disclosure clause that must be added to every non-disclosure agreement in India, whether it is a bilateral NDA or unilateral NDA:
Definition of Confidential Information Clause - The whole point of the agreement is to keep the information confidential. So it is pertinent to clearly crystalise what is considered to be confidential. The information should be specific and leave no room for ambiguities.
Parties Clause - It is important to disclose the name of the parties and the representative who shall have access to the confidential information shared during the term of business.
The term of Confidentiality Clause - What is the time period for which the NDA should last? Some may want it for a definite period and the others may want it for infinite period considering that at any point in time why such confidential information be revealed. However, from the perspective of the receipt of the confidential information, it will become a costly affair to guard the confidential information for an indefinite period. Confidential information clause is the most important NDA clause.
The next question here is, how does one decide as to what is the reasonable time for keeping the information confidential.
Typically, this entirely depends upon the industry you are in and the type of information that is shared. In some business type, a few years may be acceptable because the technology may change so fast as to render the information futile after a period of time. The most potential partners prefer 12-18 months and generally not more than two years.
Use of Confidential Information Clause - It is very crucial to clearly state the intended use of the shared confidential information. It is should state what is the purpose of sharing the information and where all it can be used. The scope of usage of confidential information clause should mention the name of all the third parties who will be dealing with confidential information.
Mandatory and Legal Disclosure Clause - The recipient may, at some point, be legally compelled to disclose the confidential information to a government agency, court or lawyers. As a measure of protecting both the parties, the NDA must include a clause that acknowledges that such disclosure will not amount to a violation.
Arbitration Clause - The remedy in case of breach by the recipient must be clearly stated in the arbitration clause of NDA. if the parties wish to resolve their conflict via alternative dispute resolution like Arbitration, the NDA must specify arbitration terms, the seat of arbitration and number of arbitrators that can be appointed. NDA dispute resolution clause states that in a situation dispute arises between the parties to the agreement it will resolve the dispute through the pre-decided alternate dispute mechanism. The mechanism opted by the parties is mostly arbitration and thus the dispute resolution clause is also known as NDA arbitration clause.
Jurisdiction Clause - Jurisdiction clause of NDA specify which court will have jurisdiction over the parties in case of a future dispute between them. For instance, the parties can stipulate Delhi courts to have jurisdiction in case of a conflict between them.
The Clause on return or destruction of Confidential Information exchanged - After the expiry of the term of the NDA, the receipt should either destroy or return the confidential information. The clause should stipulate how and when should this occur.
An NDA is drafted by a lawyer acting as an all-inclusive safety net for the disclosing party and recipient when it comes to sharing confidential information. As it deciphers unrealised loopholes as well as provides transparency and answerability.
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