Non Disclosure Agreement

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What is a Non Disclosure Agreement (NDA)?

A Non Disclosure Agreement, also generally called as ‘Confidentiality Agreement’, is an agreement wherein the parties agree to share the confidential information/data which is specified in the ‘Confidentiality Clause’ of the Non Disclosure Agreement. The parties to the Non Disclosure Agreement also agree not to disclose such information to the third party beyond the terms of the agreement

Other Names of the Non Disclosure Agreement :

A Non Disclosure Agreement has multiple names like:

  • Confidential Agreement (CA)
  • Confidential Disclosure Agreement (CDA)
  • Secrecy Agreement (SA)
  • Proprietary Information Agreement (PIA)

Types of Non Disclosure Agreement (NDA)?

Type of Non Disclosure Agreement (NDA) - LegalDocs

How does entering into a Non Disclosure Agreement helps?

These days, be it a Startup or others, the major assets of any corporate body is its Intellectual Property. A Non Disclosure Agreement helps protecting the Intellectual Property Rights of the parties including its databases, client lists, proprietary information, sensitive business-related information, etc.

Following are some major benefits of entering into an NDA -

  • A Confidential Clause in the Non Disclosure Agreement clearly defines what exactly is the ‘confidential matter’ for which the Non Disclosure Agreement is entered into.
  • It helps in maintaining the utmost secrecy between the parties by binding them legally through various clauses constituted under the Non Disclosure agreement. This prohibits the receiving party from disclosing the confidential information.
  • Various clauses of the Non Disclosure Agreement also draw the timeline upto which the party is obliged to maintain the secrecy. This period could be beyond the effective period of the NDA itself.
  • A Non Disclosure Agreement is legally binding and thus the party infringing the agreement would be legally liable to compensate the damages to the aggrieved party (which is mostly the disclosing party).
  • The dispute can be referred to the Arbitrator or even taken to the court if the level of violation demands. That’s how the owners of the confidential information is granted relief as they have taken effort to safeguard the shared confidential information through the Non Disclosure Agreement.
Precautions to be taken while entering into a Non Disclosure Agreement:

If not drafted properly, the Non Disclosure Agreement may lose its sole purpose. Thus, some precautions shall be taken by the parties, especially by the Disclosing Party, before finalising the Non Disclosure Agreement draft. Some of the major precautions to be taken are as follows:

  • One shall ensure whether all the information which are confidential in nature and shared or will be shared with the other party is clearly and unambiguously mentioned in the Non Disclosure Agreement.
  • Ensure that the parties to the agreement clearly understands what they are signing into. Their obligations and rights under the Non Disclosure Agreement shall be clearly known and understood by the parties.
  • It is not advisable to to include unfair clauses in the NDA, but prior analysis of the nature of the other party shall be carefully done, which is also known as conducting Due Diligence, and accordingly necessary clauses shall be inserted in the Agreement.
  • Behavior during the NDA can be an early indicator of what the entire negotiation process will be like. while it is not advisable to include unfair clauses in the NDA, it creates a challenging environment to be too rigid.
  • None of the clauses shall be confusing or in conflict with the other clause in the same Non Disclosure Agreement, as it might create confusion amongst the parties. Since, the confusion between the parties may also lead to legal bills.
  • In the case of dispute or breach of agreement, if the parties to the agreement mutually agree to refer to an Arbitrator instead of Court, it would be both time and money saving for both the parties.

When to sign a Non Disclosure Agreement?

There are various events or circumstances under which an NDA shall be entered into and signed. Few of them are as follows:

  • into a business deal,
  • While taking expert’s advice on a new product,
  • while starting a new project,
  • while investigating a possibility of investment with other party,
  • while providing employment,
  • while signing a contract worker for a sensitive project,
  • while dealing with sensitive client information,
  • while discussing commercially sensitive information with other party, etc.

so as to keep it secured as per the terms of the Non Disclosure Agreement which are inserted to protect the proprietary information from being misused.

Are Non Disclosure Agreements legally binding?

A Non Disclosure Agreement is governed by the Indian Contract Act, 1872 and according to it a Non Disclosure Agreement (NDA) is a legally binding contract. To ensure the further validity and enforceability of the Non Disclosure Agreement, it is suggested to stamp the NDA.

Is it mandatory to print a Non Disclosure Agreement on a stamp paper?

It is not mandatory to get an NDA printed on a Stamp Paper. An NDA can be printed on a letterhead of the company and signed by the parties on both sides of each page of the NDA

If you choose to print the NDA on a stamp paper, get it printed on a non-judicial stamp paper or e-stamp paper (available in certain states). Have the NDA signed in the presence of witnesses. After this you are required to get the NDA Notarized.

How to know the value of a Stamp Paper?

Each state in India has different value of stamp paper. Thus, depending upon the state in which the agreement is executed (here, Non Disclosure Agreement), the value of Stamp Paper shall be derived. The value of Stamp Paper or Stamp Duty payable can be found on the state government websites.

Does a Non Disclosure Agreement need to be notarised?

It is not mandatory to Notarise or to have the Non Disclosure Agreement signed by Witness. But to ensure the further validity and enforceability of the Non Disclosure Agreement parties may choose to have witnesses sign the NDA and entact the validity of the document so that it cannot be questioned in the court of Law.

What is the difference between Non Disclosure Agreement with Witness and Without Witness?

An agreement having witnesses has a limitation period of 12 years for bringing a claim for breach of agreement in the court of law whereas, the limitation period in case of agreement without witness is 6 years.

Limitation period means the legally specified period beyond which any legal action may not be entertained in the court of law.

Is Registration of a Non Disclosure Agreement necessary?

As per the Indian Contract Act which governs the Non Disclosure Agreement in India, registration of an NDA is not Mandatory. But it is advised to register an NDA as it becomes easy to prove the validity of the document as well as to prove your case.

What happens if you break the NDA?

The penalties over the breach of the agreement are generally specified in the agreement itself and the breaches or infringement are accordingly dealt with. If in any agreement the penalty is not specified, it is clearly mentioned that the person guilty of violation or breach of contract shall be sued for such misappropriation.

How long do Non Disclosure Agreement last?

There is no such specific time limit given on the duration of the Non Disclosure Agreement. Generally, the the Non Disclosure Agreement is seen to extend over a period of 2 to 5 years. The corporates may also enter into a Non-Terminating Non Disclosure Agreement so as to protect the trade secrets permanently.

But, as soon as the ‘confidential information’ covered under the NDA becomes public, the Non Disclosure Agreement has no effect and it comes to an end.

Importance of mentioning Jurisdiction Clause in NDA:

Jurisdiction clause determines the courts of which city shall have jurisdiction over the Non Disclosure Agreement in case of dispute between the parties. Thus, it is very important to mutually agree and specify in the NDA that courts of which city will have jurisdiction over the dispute and the infringed agreement.

It is more vital to specify the Jurisdiction where the person from the foreign country is a party to the contract, else it could be a hugely expensive court fight!

Essential Content of the NDA:

  • Definition of Confidential Information

    What is ‘Confidential Information’ in the transaction between the parties shall be clearly covered under the non disclosure agreement. Generally, the disclosing party might have broader definition, since the this party usually receives greater benefits under this agreement. Whereas, the receiving party may have a narrower definition for the same.
  • What is Not a Confidential Information

    Inserting a clause mentioning what is NOT a confidential information is equally important. There could be multiple transactions for which some information cannot be expected to remain confidential. Also, the information which is already available to public cannot be treated as a ‘Confidential Information’.
  • Term of Confidentiality

    It is very vital for any Non Disclosure Agreement to define and set forth the time period of the life of the NDA. Depending upon the nature of the transaction covered by the agreement the life of the non disclosure agreement can be decided. It could be 1 year, 10 years or for indefinite time.
  • Disclosure

    The Non Disclosure Agreement shall also define with whom the party is allowed to share the confidential information. Especially while conducting due diligence or while analysing the nature of the party, the other party may need to share some confidential data (like, financial data) with its associated representatives, partners or companies. Thus, the ‘disclosure’ element shall also be clearly specified.
  • Exceptions to Confidentiality

    There might be some unavoidable situations in which the party is under obligation to disclose the confidential information to the third party. Such situation may occur if the administrative authority, government bodies may ask for such confidential information or for legal proceeding the party might be asked to disclose such confidential information. In such situation, the party sharing such confidential information shall not be considered as infringing the terms of Non Disclosure Agreement. Thus, necessary exceptions to the Non Disclosure Agreement shall also be specified therein.
  • How to Return the Confidential Information

    Generally, the way of handling the confidential information depends on the nature of the shared information. There shall be a clause which specifies in which way and within what time the recipient is expected to either return the document or is required to destruct the whole information received by the recipient as the confidential information. This is important as the information disclosed under the NDA shall not remain available to the recipient after the expiry of the life of the Non Disclosure Agreement.
  • Remedies

    The disclosing party is at a bigger risk while sharing the confidential information. Thus, if there occurs any infringement of the clauses of the agreement or breach of agreement, the remedies available to the aggrieved party shall be clearly mentioned in the agreement.
  • Interaction with Employees

    After setting up the deal, the other party often comes in touch with the employees of the disclosing party which could give an edge to such party to entice the employees of the disclosing party. They may induce such employees to leave their current employment in order to work for them. To safeguard the organisation from losing such potential employees, the non disclosure agreement shall have an employee solicitation clause restricting the other party from inducing or enticing the employees.

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Non Disclosure Agreement FAQs

What is the purpose behind entering into a Non-Disclosure Agreement (NDA)?

When a party discloses any valuable information/data, in a physical or electronic form to the other party, to avoid any leakage of such valuable information/data and to transfer the same in a secured manner the Non Disclosure Agreements are made. Thus, Non Disclosure Agreements are very useful while sharing a confidential information with the other party in a secured way so as to avoid any unlawful activity.

Who is the ‘Disclosing Party’ under NDA?

The Disclosing party is the one who discloses the confidential information to the other party under the Non Disclosure Agreement.

Who is the ‘Receiving Party’ under Non Disclosure Agreement?

When one party agrees to disclose any valuable and confidential information with the other party under Non Disclosure Agreement, the party who receives such information is called as a ‘Receiving Party’.

What is the basic obligation of the ‘Receiving Party’?

As the recipient of the information, it is the duty of the recipient to not to disclose the received confidential information/data under the terms of the Non Disclosure Agreement to any third party beyond the specified terms.

What is Confidential information in a NDA?

Confidential Information is the information that the disclosing party wants to keep from sharing with any person other than the party or parties to the Non Disclosure Agreement. All the data/information which is considered as ‘Confidential’ shall be included in the ‘Confidentiality Clause’ of the Non Disclosure Agreement to avoid any kind of confusion or misuse of the data/information.

Who can enter into a Non Disclosure Agreement?

NDAs can be entered into by any individual, society, corporate bodies and anyone who is referred to as a person or separate legal entity in the eyes of law, who is willing to disclose and/or receive some confidential information to and/or from the other party to the agreement.

What is the difference between an Agreement and a Non-Disclosure Agreement ?

All Non Disclosure Agreements could be an Agreement but all agreement could not be a Non Disclosure Agreement.An Agreement is formed when one party accepts the offer of the other party, and where both the parties agree to do or not to do the same thing in the same manner as agreed upon. Generally, in an agreement, there is no secrecy as such to be maintained between the parties as it is about the general transaction in a general sense. Whereas, a Non Disclosure Agreement is an agreement where one party agrees to share some confidential information with the other party & the other party agrees not to disclose the same to any third party for a specified period of time.

Is registration of an NDA compulsory ?

If the document (instrument, agreement or contract) is instituted for transaction of an immovable property, need of Registering a document arises. In case of a Non Disclosure Agreement which is entered into purely for exchange of the business information, it can be get printed on a non -judicial stamp paper of adequate value and get it notarized. This will give enough validity to the agreement in the eyes of law.However, if you want to register the Non Disclosure agreement, it can be registered as per the Registration Act, 1908 by approaching the sub registrar office of your city or district. Each state has separate rules for charges and procedure of registration.

What is the time period for which a Non Disclosure Agreement can be operative?

There is no such specific time limit given on the time period or life of the Non Disclosure Agreement. Generally, the the Non Disclosure Agreement is seen to extend over a period of 2 years, 5 years or 10 years. The corporates may also enter into a Non-Terminating Non Disclosure Agreement so as to protect the trade secrets permanently. But, as soon as the ‘confidential information’ covered under the NDA becomes public, the Non Disclosure Agreement has no effect and it comes to an end.

Why is there restriction on disclosure of Confidential Information ?

The person disclosing any proprietary information to the other person may not want such information to be disclosed to public and its competitors as it could hamper its future planning or market performance. As the receiving party gets access to some proprietary information, the chances of leaking of such confidential information increases. Thus, to avoid the conflicts between parties in nearby future there should be restriction on disclosure.

What if anyone wants to add additional clauses to the Non Disclosure Agreement?

If any of the party wants to add any additional clause, then it can be added with prior consent of the other party.

What is ‘Effective period of Rights, Obligations or Liabilities of each party’ ?

‘Effective period of Rights,Obligations or Liabilities of each party’ means the period during which one party is answerable to the other party in the event of violation or non performance of any rights, obligations or liabilities specified in the Non Disclosure Agreement.

What is the purpose of putting restriction to initiate the contact with employees of either party?

As the parties agree to enter into a deal with each other, they get an access to the employees of the other party. Sometimes, there are chances that the party may try to entice the employee(s) for their own benefit which could turn out to be a major loss for the other party. Thus, to avoid such unlawful activity there shall be certain restriction on initiating the contact with employees of either party.

Why is it important to verify or audit the safety measures taken by the Receiving Party to prevent the misuse of disclosed confidential information?

While the confidential data/information is in the possession of the receiving party, there are major chances of misuse or loss of such information. Thus, to ensure whether there are enough precautions taken by the Receiving Party to ensure the secrecy of the confidential data, safety measures taken by receiving party shall be audited.

What is the legal provision available for breach of confidentiality?

In case of breach of any confidential data/information disclosed to the other party under the Non Disclosure Agreement, the party suffering from such breach can file a suit in the Court of law and can ask for injunction. If the Non Disclosure Agreement has an Arbitration Clause, the party may also refer the dispute to an Arbitrator and can get the dispute settled.

What is Arbitration ?

Arbitration, a form of Alternative Dispute Resolution, is a process of dispute resolution, outside the court, where the dispute is resolved in a friendly and peaceable manner through the elected arbitrator(s) and where the decision of the arbitrator(s) is determined judicially and has binding effect on all the parties.

Who is an Arbitrator?

An arbitrator can be understood to be a private judge hired by the disputing parties to resolve their dispute. Unlike in Courts, the parties have an option to choose their own Arbitrator. There could be one Arbitrator appointed mutually by the parties or each party may appoint their respective Arbitrators and in case of conflict of decision between the Arbitrators, the decision of the chief Arbitrator will be final and binding upon the parties.

Who can be the Arbitrator?

There are no certifications or qualifications to be an Arbitrator thus, anyone who is of legal age and of sound mind can be appointed as an arbitrator. Many retired or former judges also hold themselves out as arbitrators. The parties also have an option to appoint an Arbitrator from Arbitral institutions.The Government of India has made an Arbitral institution called as ‘Indian Council of Arbitration’ (ICA) which maintains a wide range of experts in various professions, trade and businesses. ICA ensures that the person is chosen as Arbitrator for their knowledge, experience, impartiality and integrity.

Who can be the Arbitrator where one of the parties is a foreign party?

If the party chooses to appoint an Arbitrator from ‘Indian Council of Arbitration’ (ICA), there are arbitrators for foreigners in their panel which maintains expert arbitrators. This enables the Foreign parties to choose arbitrators of other nationalities whom they consider more suitable.

What is the Role of an Arbitrator?

An arbitrator serves as the decision-maker and 'referee' in an arbitration proceeding, much like a judge during court litigation. The arbitrator is bound by the rules outlined in the ‘Arbitration Clause’ of the agreement in the dispute.

Is it compulsory to refer a dispute to an Arbitrator?

It is not compulsory to refer a dispute to an Arbitrator. There can be reference to arbitration only if there is an arbitration agreement or arbitration clause in the agreement in dispute, between the parties. Thus, if as per the Agreement to the dispute the Arbitration is binding, the parties cannot seek a reversal of the decision in court, except under very few circumstances. However, help of the court can be taken by the party, in whose favour the decision is given, to enforce the arbitrator's decision.
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