Ten Most Important Clauses to be Incorporated in a Non-Disclosure Agreement (NDA): Lawyers Advice

In today’s world, the primary asset of most businesses is often information. This information could include intellectual property, strategic plans, research and development and data. In order to ensure that the receiving party does not divulge the information that is provided, it will be useful that the enterprise providing the information enters into a Non–Disclosure Agreement (NDA) with the receiving party.

An NDA is essentially a contract between two or more parties, where there exists a disclosing party and a receiving party. However, all NDAs are not the same. There exist several clauses in an NDA that has to be tailored to the nature of the enterprise and the specific business relationship at hand. In order to ensure that there is no unauthorised leakage of information, the following best practices ought to be kept in mind while drafting NDAs.

Defining Confidential Information: This clause is the essence of the agreement. Information that is already in the knowledge of the receiving party or information that is in the public domain cannot be included in this clause. It is important for the party that is divulging the information to ensure that confidential information is defined in a comprehensive and precise manner to ensure that there is no scope for oversight or misunderstanding in the agreement. Additionally, care should be taken to ensure that the definition is not too vague, broad or unenforceable.

Time frame of the NDA: While setting the time frame of the information, it is important to be reasonable. Clauses that set the time frame beyond a reasonable time, will be held to be unenforceable by the court. The time period of the NDA should include the day in which it is entered into as well as the day on which the service contract comes to an end.
In the case of Bharat Sanchar Nigam Ltd. v. Shri Chander Sekhar (LPA No. 900 of 2010) the Delhi High Court held that NDAs cannot be said to extend beyond the confidentiality period provided for in the agreement itself.

Permitted Uses: Confidential information is shared with the receiving party, keeping a particular goal in mind. The circumstances under which this information ought to be used should be clearly spelt out in the NDA. It is better to be specific while drafting this particular clause. The specific third parties with whom the information can be shared can also be mentioned in this clause. However, it is advisable to have a specific clause for the same.

Representative Clause: This clause should be incorporated to spell out all the third parties that the information can be shared to, in order to carry out the purpose of the service contract. The clause should mention that once the information is shared with the representative, they will be bound by the terms of the NDA as well. It should also mandate that the third party should also disclose any further parties to whom the information is going to be shared.

Legal Obligation to Disclose: Even the most reliable and careful recipient of confidential information may at some point, be legally obliged to disclose confidential information that thay have agreed by means of an NDA, to protect. A legal obligation to disclose clause is an acknowledgement that confidential information that is divulged as a consequence of an order of government agents, courts or administrative entities, will not be a violation of the NDA. The clause should specify that only the information that is absolutely necessary to be disclosed should be disclosed.

Return of Information Clause: There must be a clause included to provide for the return/ destruction of the confidential information once the term of the service agreement comes to an end. This clause is called the ‘return of information’ clause.
Due to the advent of devices such as hard drives, thumb drives, email storage, drop boxes, etc, it has become nearly impossible to permanently delete/ destroy information. Therefore, the need arises to include a stipulation in this clause that the confidential information should not be used for any other purposes.

Jurisdiction Clause: Despite taking all the necessary precautions to avoid any sort of disputes, they do arise. It is therefore essential that a jurisdiction clause is incorporated into the NDA. This clause should specify which court will have jurisdiction to adjudicate upon a dispute if one were to arise.

Remedies Clause: It is an arduous affair to ascertain the real damage caused by the disclosure of confidential information. Therefore, a specific clause has to be incorporated into the contract which quantifies in monetary terms, the remedies that can be sought for the breach of the NDA. It is to be noted that this is a clause that has to be mutually agreeable. Therefore, it is suggested that one is equitable while drafting the said clause.

It was held in the case of Superintendence Company of India (P) Limited v. Krishan Murgai (1981) 2 SCC 264) that in case an employer terminates the contract of an employee, he cannot thereafter, seek to enforce any petition and non – disclosure clause.

In the case of Sri. Siva Vallabhaneni v. The State (Crl.R.P. No. 211/2018), the Hon’ble Karnataka High Court held that an NDA entered into without the consent of the parties entering into it are not enforceable by the court.
Legal Fees Clause: The inclusion of this clause is to ensure that there is a discussion up front as to who is to bear the legal costs, should a suit be filed for disclosure of confidential information. The most equitable stipulation that ought to be included is that each party should be responsible for paying their own legal fees.

Non–Binding Clause: There should be a provision included in the NDA that provides for an exit mechanism for either party to not be bound by the NDA should certain situations arise. It is to be noted that an NDA should not be envisaged to imply a permanent relationship between the parties, it is merely a temporary agreement that persists while a particular collaboration is underway.
It is advisable to employ a competent and qualified lawyer for the purposes of drafting and reviewing the NDA. It should be drafted in such a way that it adequately protects confidential information while not being too rigid to scare away potential investors and collaborators.
Authored By: Adv. Anant Sharma & Vismay G.R.N.