Legal Provisions and Case Laws to Consider While Drafting a Non-Disclosure Agreement (NDA) in India
A Non-Disclosure Agreement (NDA) is governed by several laws in India, including contract law, intellectual property laws, and common law principles of confidentiality. Below are the key legal provisions and case laws to consider while drafting an NDA:
1. The Indian Contract Act, 1872
An NDA is a contract, and thus, it must comply with the Indian Contract Act, 1872 to be enforceable. The following provisions are important:
a) Essentials of a Valid Contract (Section 10)
An NDA must fulfill the essential elements of a contract, such as:
- Offer and acceptance
- Lawful consideration
- Free consent of parties
- Lawful object
Case Law:
Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006 SCC Online Del 59)
The Delhi High Court held that NDAs are legally binding contracts, and any breach of confidentiality can lead to monetary damages or injunctive relief.
b) Restrictive Clauses and Their Enforceability (Sections 27 & 74)
- Section 27: An agreement in restraint of trade is void. However, confidentiality obligations do not restrict trade but protect proprietary information, making NDAs enforceable.
- Section 74: If a party breaches an NDA, the disclosing party can claim liquidated damagesif a penalty clause is included in the agreement.
Case Law:
Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan & Anr. (2006) 4 SCC 227)
The Supreme Court ruled that reasonable confidentiality obligations are valid as long as they do not unreasonably restrain trade.
2. The Information Technology Act, 2000
The IT Act, 2000 is relevant for NDAs involving digital information, software, and trade secrets stored electronically.
a) Section 43 & Section 72 – Protection Against Unauthorized Disclosure
- Section 43: Covers unauthorized access and disclosure of sensitive information, making it applicable if confidential digital data is leaked.
- Section 72: Provides penalties for breach of confidentiality and privacy.
Case Law:
Govindrajulu v. Infosys Technologies Ltd. (2009 Karnataka HC)
The Karnataka High Court upheld the confidentiality obligations of an employee who had misused proprietary software data, highlighting the IT Act’s role in protecting digital trade secrets.
3. Intellectual Property (IP) Protection Laws
NDAs often protect trade secrets, software code, inventions, and business strategies under Indian intellectual property laws.
a) The Copyright Act, 1957
Protects original works, including software, documents, and proprietary content disclosed under an NDA.
b) The Patents Act, 1970
If an NDA involves proprietary inventions, it should clarify whether disclosures will affect patent rights or filings.
Case Law:
Bajaj Auto Ltd. v. TVS Motor Company Ltd. (2009) 9 SCC 797
The Supreme Court recognized confidentiality obligations in protecting patented technology during business negotiations.
4. The Trade Secrets and Confidentiality Protection
India does not have a specific trade secrets law, but courts enforce NDAs based on contractual obligations and common law principles.
Case Law:
John Richard Brady v. Chemical Process Equipments (1987 AIR 671)
The Delhi High Court ruled that trade secrets disclosed under a contract must be protected, and breach of confidentiality can lead to an injunction.
American Express Bank Ltd. v. Priya Puri (2006 SCC Online Del 485)
The Delhi High Court held that customer data and business strategies shared under an NDA are confidential and cannot be misused by employees post-termination.
5. Enforcement & Remedies for Breach of NDA
a) Injunctions (Civil Procedure Code, 1908 – Order 39, Rules 1 & 2)
A party can seek an interim injunction to stop further disclosure of confidential information.
Case Law:
Diljeet Titus v. Mr. Alfred A. Adebare & Ors. (2006 SCC Online Del 65)
The Delhi High Court granted an injunction to prevent an ex-employee from misusing confidential client data, reinforcing the enforceability of NDAs.
b) Liquidated Damages (Indian Contract Act, Section 74)
If an NDA specifies a penalty for breach, courts may award pre-determined damages.
Case Law:
Superintendence Co. v. Krishan Murgai (1980 AIR 1717)
The Supreme Court emphasized that reasonable confidentiality obligations are enforceable and can be backed by liquidated damages.
Key Considerations While Drafting an NDA
- Clearly define “Confidential Information”– Avoid vague terms to ensure enforceability.
- Specify the duration– Courts often scrutinize unreasonably long confidentiality periods.
- Include jurisdiction & governing law– To avoid disputes on enforcement.
- Define permitted disclosures– E.g., disclosures required by law or to specific team members.
- Specify penalties for breach– Liquidated damages, injunctive relief, or indemnification.
A Non-Disclosure Agreement (NDA) is a legally binding contract between two or more parties that outlines confidentiality obligations regarding certain sensitive or proprietary information. It ensures that the receiving party does not disclose, share, or misuse the confidential information provided by the disclosing party.
When is an NDA Entered Into?
An NDA is typically entered into when:
- Business Negotiations– When two businesses or individuals are discussing a potential partnership, investment, or acquisition.
- Employment Agreements– When an employer shares sensitive company information with employees.
- Startup and Investor Discussions– When startups pitch their business ideas to investors.
- Service or Consulting Agreements– When a consultant or third-party service provider is given access to confidential business information.
- Mergers and Acquisitions– When one company is evaluating another for a potential merger or acquisition.
- Product Development– When two or more parties collaborate on a product, technology, or innovation.
- Intellectual Property Protection– When sharing ideas, patents, or inventions with potential partners.
Contents of a Non-Disclosure Agreement
An NDA generally includes the following key clauses:
Definition of Confidential Information – Specifies what information is considered confidential (e.g., trade secrets, financial data, business plans, customer lists, etc.).
Parties to the Agreement – Identifies the disclosing and receiving parties.
Purpose of Disclosure –Outlines why the information is being shared and for what purpose.
Obligations of the Receiving Party
Specifies how the receiving party should handle and protect the confidential information.
Exclusions from Confidentiality
Lists information that is not considered confidential, such as:
Publicly available information.
Information received from a third party without a confidentiality obligation.
Information independently developed by the receiving party.
Duration of Confidentiality – Specifies how long the NDA remains in effect (e.g., for a fixed period or indefinitely).
Permitted Disclosures – Describes any exceptions, such as disclosures required by law or with prior written consent.
Consequences of Breach – Specifies legal remedies in case of a violation, such as monetary damages or injunctions.
Return or Destruction of Information – States that upon termination, the receiving party must return or destroy confidential materials.
Jurisdiction and Governing Law – Specifies which legal jurisdiction and laws govern the agreement.
Miscellaneous Provisions – May include dispute resolution methods, indemnity clauses, or amendments.
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement (“Agreement”) is made and entered into on this ___ day of ________, 20, by and between:
XYZ Organisation, a company incorporated under the laws of India, having its registered office at _______________ (hereinafter referred to as the “Company“), which term shall include its affiliates, successors, and assigns;
AND
Soumya Sandeep, an individual residing at _______________, engaged as a Software Engineer with the Company (hereinafter referred to as the “Recipient“).
The Company and the Recipient shall be collectively referred to as the “Parties” and individually as a “Party.”
1. Purpose
The Recipient has been engaged by the Company to work on a confidential software project. In the course of her engagement, the Recipient will have access to sensitive and proprietary information of the Company. The purpose of this Agreement is to ensure that such information remains confidential and is not disclosed to unauthorized persons.
2. Definition of Confidential Information
For the purposes of this Agreement, Confidential Information shall mean any and all technical, business, financial, and proprietary information, including but not limited to:
a) Software source codes, algorithms, and technical specifications;
b) Business strategies, plans, and trade secrets;
c) Customer data, vendor details, and internal processes;
d) Any other information designated as confidential by the Company.
Confidential Information shall not include information that:
i) Is or becomes publicly available through no breach of this Agreement by the Recipient;
ii) Is lawfully received from a third party without confidentiality obligations;
iii) Is independently developed by the Recipient without reference to Confidential Information.
3. Obligations of the Recipient
The Recipient agrees that:
a) She shall maintain strict confidentiality and not disclose Confidential Information to any third party, except her team members working on the same project.
b) She shall use the Confidential Information solely for the purpose of fulfilling her professional duties for the Company.
c) She shall take all reasonable precautions to prevent unauthorized access, copying, or misuse of Confidential Information.
d) She shall not remove, reproduce, or share Confidential Information in any form, whether electronic or physical, without prior written consent from the Company.
4. Permitted Disclosure
The Recipient may share Confidential Information only with her designated team members within the Company who are working on the same project, provided that such individuals are bound by similar confidentiality obligations.
If the Recipient is required by law or court order to disclose Confidential Information, she must immediately notify the Company and take reasonable steps to minimize disclosure.
5. Duration and Survival
This Agreement shall remain in effect throughout the Recipient’s engagement with the Company and shall continue for a period of three (3) years after the termination of such engagement.
6. Return or Destruction of Information
Upon termination of her engagement, the Recipient shall promptly return or destroy all Confidential Information, including any copies, notes, or extracts, in any format, and provide written confirmation of compliance.
7. Consequences of Breach
In the event of a breach of this Agreement, the Company shall have the right to seek legal remedies, including but not limited to:
a) Injunctive relief to prevent further disclosure or misuse;
b) Compensation for any financial losses or damages suffered;
c) Termination of engagement without notice.
8. Governing Law and Jurisdiction
This Agreement shall be governed by and construed in accordance with the laws of India. Any disputes arising out of or related to this Agreement shall be subject to the exclusive jurisdiction of the courts in [City, State].
9. Miscellaneous
- a) This Agreement constitutes the entire understanding between the Parties and supersedes any prior agreements, whether written or oral.
b) No modification of this Agreement shall be valid unless made in writing and signed by both Parties.
c) If any provision of this Agreement is found to be invalid or unenforceable, the remaining provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
For XYZ Organisation
Authorized Signatory
Designation: _______________
Date: _______________
Soumya Sandeep
Signature: _______________
Date: _______________