A Non-Disclosure Agreement or NDA is an agreement in which one or more parties to the agreement agree to share confidential information or trade secrets which would be vital to the parties to the NDA and further to restrain from disclosing such information to any third party. These agreements can be agreed to and signed by two or more companies/firms, between an employer and an employee, between an individual and a company/firm, and between two individuals. This is done as the information shared between these entities and/or individuals are the intellectual properties of the respective companies/firms or individuals. These agreements are also known as Confidential Agreement (CA), Confidential Disclosure Agreement (CDA), Secrecy Agreement (SA) and Proprietary Information Agreement (PIA). The basic purpose of such agreements is to define exclusively what the confidential information shall entail and a clear restriction on sharing such information with any third party. These agreements can also be made part of regular work contracts, employment contracts, and agreements between parties as Non-Disclosure clauses in such agreements.
TYPES OF NDA: –
There are three basic differences in Non-Disclosure Agreements. They are: –
Unilateral NDA –
In these type of agreements, one party shares confidential information with the other party for use during their employment or contract. This means that whenever a Company/firm or even an individual hires someone or some other company/firm to work for them, they have to share some information that is the Intellectual property of the sharing party and such information is the key part of such employment/contract and the employees or entities entrusted with such information use this information to work on the employer’s projects. Thus, in this type of NDA, the receiving party is tasked with using such information during their tenure and is also restricted from sharing such information with any third party or using such information for their own benefit. In short, one party shares confidential information or the information is shared “unilaterally” with the other party and such other party is restricted from sharing any such information.
Bilateral NDA –
In these types of agreements, two parties to an agreement reveal confidential information to each other in pursuance of the agreement between them. Each party will be disclosing to the other party confidential information which is relevant to their work. Thus, in this case, both parties share and receive confidential information. Both the parties to the agreement are made responsible for the confidential information that is to be shared and also restricted from sharing the same with any outside party or third party.
Multilateral NDA –
In these types of agreements, more than two parties are involved. The need for such agreements arises when one of the parties reveals confidential information to the other parties, and desires to prevent that information from further being disclosed by the receiving parties. Thus, in this type of agreement, there is one disclosing party and several receiving parties which are restricted from sharing the information shared by one of the parties.
VALIDITY AS PER INDIAN LAW: –
In India, there are no laws or provisions providing for Non-Disclosure Agreements. For an agreement to be legally enforceable, it has to be termed as a “Contract” as per Section 2(h) of the Indian Contract Act and a Contract has to have a consideration and a lawful object as per Section 10 of the Act. Now, the definition of “Consideration” as per Section 2(d) of the Act is produced herein below –
“(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;”
In Contract Law, a ‘Promisor’ is a person who makes a proposal to another party, which if accepted by the other party, becomes a promise and the person making the proposal becomes a ‘Promisor’ and the person accepting the proposal becomes the ‘Promisee’. Section 2(a), (b) & (c) of the Indian Contract is being produced herein below: –
“(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;
(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”;
In the current case of Non-Disclosure Agreements, the ‘promise to abstain from doing’ defines the requirement of Confidentiality which either of the parties may require to be done by the other party. Now, as per the definitions of consideration, Promisor and Promisee, it is clear that an NDA has a consideration and a lawful object, the lawful object being the promise to abstain from sharing confidential information to any third party outside of the parties to the Contract which is accepted by the other party.
NDAs may also fall into the ambit of Section 27 of the Indian Contract Act, 1872 which states that any contract or agreement made in restriction of any lawful profession, trade or business of any kind will be void unless the goodwill of a company is sold.
In the current case, an NDA is not made void by the aforementioned section as it does not restrict anyone from exercising any lawful profession, trade or business, as per the wordings of the section. It only restricts someone from sharing any confidential information or trade secrets that are shared in the due course of employment by the parties to the NDA. So, the enforceability of an NDA is not made void by Section 27 of the Indian Contract Act, 1872.
Thus, the validity of an NDA is substantiated by the Indian Contract Act, 1872 and further some case laws/judgements have been provided for below which further uphold the validity of NDAs.
CASE LAWS THAT VALIDATE NON-DISCLOSURE AGREEMENTS
There are a few judgements by the Courts of India that have upheld the validity of NDAs. Some of the judgements have been examined and referred to below: –
F.S Global Services Ltd. Vs. Mr. Suprit Roy
In this case, the Respondent was an employee in the Petitioner Company where the Respondent had tendered his resignation. There was a confidentiality clause in the M.O.U which was entered into between the parties when the Respondent had joined, which was disputed by the Respondent as being vague in Court. But the Petitioner Company gave a more definite meaning to the confidential information being shared, in their Rejoinder, which was accepted by the Respondent and further upheld by the Hon’ble Court.
BLB Institute of Financial Markets Ltd. Vs. Ramakar Jha
This is a case where a person was hired by a company to do a specific job that required disclosing of valuable information about the company. In this case, the defendant harassed the company for salary increments threatening to leave, if not accepted by the Company. In the relevant portions of this judgement, the Hon’ble Court came to the conclusion that if the confidential information such as techniques, teaching, study materials and handouts were shared with any third party, the Respondent would be causing irreparable damage to the Petitioner.
Thus, the Hon’ble Court in this case also upheld the NDA clause in the agreement between the parties to the case.
Diljeet Titus, Advocate vs. Mr. Alfred A. Adebare & Ors
This is a case of conflict between Advocates, where the Defendants to the case were under allegations by the Plaintiff, of stealing and misappropriating confidential data of the Plaintiff, while they resigned from the Plaintiff’s services. In this case, also, the Hon’ble Court upheld the importance of maintaining the confidentiality and passed an Interim Relief against the Defendants to restrain them from utilizing the Plaintiff’s materials and from disseminating or otherwise exploiting the same including the data for their own benefit.
The existence of Non-Disclosure Agreements is not disputed by any law which is in force for the time being and instead, the validity of NDAs have been made clear by the aforementioned case laws. It is also evident from the reading of the Indian Contract Act, 1872 particularly Section 27 that an NDA or NDA clause in an agreement cannot be made void by the aforementioned section.
- F.S Global Services Ltd. Vs. Mr. Suprit Roy Vfs Global Services Private … vs Mr. Suprit Roy on 10 December, 2007 (indiankanoon.org)
- BLB Institute of Financial Markets Ltd. Vs. Ramakar Jha M/S.Blb Institute Of Financial … vs Mr.Ramakar Jha on 22 September, 2008 (indiankanoon.org)
- Diljeet Titus, Advocate vs. Mr. Alfred A. Adebare & Ors Diljeet Titus, Advocate vs Mr. Alfred A. Adebare And Ors. on 8 May, 2006 (indiankanoon.org)
- Other Sources –
- What You Need To Know About Non-Disclosure Agreements (ipleaders.in)
- Enforceability of confidentiality agreements and section 27 of the Indian Contract Act, 1872 – iPleaders
- What You Should Check in Non-disclosure Agreement? (vakilsearch.com)
- A Complete Guide to Nondisclosure Agreement (NDA) (legalgps.com)