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A Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, is entered between 2 or more parties to preserve and protect confidential information (such as cost and pricing, projected capital investments, inventory, marketing strategies, customer lists, trade secrets, amongst others) received in the course of the transaction, from further disclosure.
What are the different types of Non-Disclosure Agreements?
There are several types of Non-Disclosure Agreements that one must be aware of before getting one drafted. Those are:
- Unilateral Non-Disclosure Agreement
- Bilateral Non-Disclosure Agreement
- Multilateral Non-Disclosure Agreement
Unilateral Non-Disclosure Agreement:
In a Unilateral Non-Disclosure Agreement, the two parties are involved – the owner of the knowledge and the party who agrees to not disclose the confidential information. This type of agreement is usually seen in a professional setup between the employer and its employees. The employer can make their employees sign a Non-Disclosure Agreement to safeguard their confidential information related to business.
Bilateral Non-Disclosure Agreement:
In a Bilateral Non-Disclosure Agreement, both the parties will share some confidential information that either party is obligated to not disclose. An example of this type of Non-Disclosure Agreement is the one signed in a Venture Capital Agreement. In such agreements, information of both parties is meant to stay confidential.
Multi-Lateral Non-Disclosure Agreement:
Under a Multilateral Non-Disclosure Agreement, there are multiple parties involved in the agreement that shares confidential information with the other parties. In such type of agreement, all the parties are obligated not to disclose any confidential information shared.
When do you need to sign a Non-Disclosure Agreement?
There are more than just a handful of situations where you or your business may need a Non-Disclosure Agreement. Some of these include:
When you are sharing any information about your business pertaining to the technology, licensing, or sale of the product.
When your employees are given access to confidential information about your business or product.
When you are giving an offer to someone who can be a potential investor in your business.
When you are going to receive any service from a vendor or a business who will access confidential information of your business
When you have to share sensitive information about your business with a potential buyer
Key elements of a Non-Disclosure Agreement
In addition to the involved parties, there are certain essential elements of a Non-Disclosure Agreement that constitutes an essential part of the agreement. These include the following:
A description containing details of the confidential information.
The purpose and requirements of the parties
The obligations of the parties involved.
What all is excluded from the Non-Disclosure Agreement
The term and duration of the agreement.
The consequences in case of a breach of the agreement?
FREQUENTLY ASKED QUESTIONS
1. Are NDAs binding and enforceable?
An NDA is a valid agreement under the Indian Contract Act 1872. There have been various cases where both the Supreme Court as well High Courts have issued injunctions against former business associates to prevent the disclosure of information covered under the agreement.
2. What kind of information can be protected under an NDA?
While there is no certain law that states what information is considered confidential, the following have been held to be confidential information as per the Indian courts
2.1 Trade Secrets
2.2 Client lists
2.3 Industrial drawings
2.4 Intellectual Property
2.5 Prototype products
2.6 Proprietary documents
2.7 Manufacturing processes
3. Can an employee be bound by an NDA post-termination of employment?
Yes, an employee can be bound by NDA post-termination. The same has been upheld by the Delhi as well by the Bombay High court.
4. Are there any exceptions to the disclosure of confidential information?
While there are no express exceptions towards the disclosure of confidential information protected through NDAs, however, a person may disclose confidential information under the following circumstances
4.1 Where the disclosure is required under law or by a statutory authority;
4.2 Where the information has been disseminated into the public domain; or
4.3 Such disclosure is permitted by the owner of the confidential information
5. What is the purpose of a Non-Disclosure Agreement?
There are various purposes of a Non-Disclosure Agreement. These include:
To make a new business deal
To start a new project
To pitch potential investors
To merge and acquire new businesses
6. What should a Non- Disclosure Agreement include?
The common elements of a Non-Disclosure Agreement are:
The parties that are signing the agreement
Description of the information that is considered confidential
Clarity on the reason why the information is being disclosed
An explanation of how confidential information should and shouldn’t be used
The duration of the agreement
7. How long does the Non- Disclosure Agreement last?
The duration for which the Non- Disclosure Agreement will last shall be determined by the party that owns the information. They must protect their confidential information for as long as they consider it to be reasonably appropriate.
8. Can I terminate a Non- Disclosure Agreement?
If any of the parties bound by the agreement wishes to terminate it, there should be a clause in the agreement for that. The clause must mention that either of the parties can terminate the agreement after providing notice to the other party involved.