Non Disclosure Agreement (NDA)

Non Disclosure Agreement (NDA): complete guide

Introduction

A Non Disclosure Agreement, commonly called an NDA or confidentiality agreement, is a contract in which one or more parties agree to keep certain information confidential and to use it only for a stated purpose. It is the standard first document signed when a business needs to share sensitive information with someone outside the organisation, whether that is a potential investor, a prospective client, a vendor, a technology partner, a consultant or a new employee.

Businesses share confidential information all the time: product designs, source code, pricing models, customer lists, supplier terms, financial statements, business plans, manufacturing processes, marketing strategies and unreleased features. Once such information is out, it is very difficult to bring back. An NDA does not physically prevent disclosure, but it creates a clear legal obligation not to misuse or disclose the information, sets out what happens if that obligation is broken, and gives the owner of the information a basis to seek an injunction and damages.

India does not have a dedicated statute on trade secrets. Protection for confidential information comes mainly from contract law under the Indian Contract Act, 1872, from the equitable principle of breach of confidence developed by courts, and in specific contexts from the Information Technology Act, 2000, which deals with unauthorised access and data misuse, and from the Copyright Act, 1957 for original works. Courts have repeatedly granted injunctions to restrain misuse of confidential information where it was clearly identified and shared in confidence. A carefully drafted NDA is therefore the main practical tool for protecting trade secrets in India.

Professional drafting matters because NDAs are often treated as boilerplate, downloaded and signed without thought. A generic template may define confidential information so broadly that a court refuses to enforce it, or so narrowly that the most important information falls outside it. It may also include a non-compete that is void under Indian law, omit remedies such as injunctions, or fail to deal with residual knowledge and return of information. Our team drafts NDAs tailored to the purpose of disclosure, the type of information involved and the relationship between the parties.

Who Needs It

An NDA is useful in many situations, including:

• Startups pitching to investors, partners or acquirers, though many institutional investors decline to sign NDAs at the pitch stage and agree to them only at due diligence.
• Businesses sharing information with vendors and service providers, such as software developers, designers, manufacturers, marketing agencies and consultants.
• Companies negotiating a deal, such as a merger, acquisition, joint venture or strategic partnership, where due diligence documents are exchanged.
• Employers onboarding employees, interns or consultants who will access proprietary information, either through a standalone NDA or a confidentiality clause in their contract.
• Technology companies sharing source code, APIs, algorithms or product roadmaps with integration partners.
• Manufacturers sharing designs, specifications and processes with contract manufacturers or job workers.
• Franchisors and licensors sharing operating manuals, recipes or methods with prospective franchisees and licensees.
• Researchers and inventors sharing details of inventions before a patent application is filed, where disclosure without confidentiality could affect novelty.
• Professional advisers and freelancers who need to reassure clients about confidentiality.

Key Benefits

• Clear legal obligation. The recipient knows exactly what is confidential and what they may and may not do with it.
• Basis for injunctions. A signed NDA makes it easier to approach a court quickly to stop misuse or disclosure.
• Claim for damages. The disclosing party can claim compensation for losses caused by a breach.
• Protection of patentability. Sharing an invention under a confidentiality obligation helps preserve novelty before filing a patent application.
• Trust in negotiations. Parties can share information more openly, which helps deals move faster.
• Control over information. Clauses on return or destruction, restricted access and permitted disclosures keep the owner in control.
• Evidence of what was shared. Schedules or written records of disclosures help prove what information was confidential.

One-way and mutual NDAs. A one-way NDA, also called a unilateral NDA, protects information flowing from one party to the other, such as from a company to a vendor or employee. A mutual NDA protects information flowing in both directions, which is common in partnership discussions, mergers and joint development. Choosing the right type matters: a one-way NDA used where both parties share information leaves one side unprotected, while a mutual NDA used where only one side shares may impose unnecessary obligations.

What an NDA cannot do in India. An NDA cannot stop an employee from working for a competitor after leaving, because Section 27 of the Indian Contract Act, 1872 makes agreements in restraint of trade void, subject to narrow exceptions. Courts have, however, enforced obligations not to use or disclose the former employer's confidential information and not to solicit clients using that information. An NDA also cannot protect information that is already public, independently developed or rightfully received from a third party, which is why these exclusions are standard.

Eligibility and Legal Requirements

Any person or entity competent to contract can sign an NDA. The key legal points that shape a valid and enforceable NDA are:

• Valid contract. The NDA must satisfy the essentials of the Indian Contract Act, 1872, including free consent, lawful object and consideration. The mutual exchange of information or the opportunity to discuss a transaction is generally treated as sufficient consideration.
• Definition of confidential information. The definition should be specific enough to be certain and broad enough to cover what matters, such as information marked confidential, information disclosed orally and confirmed in writing, and information that a reasonable person would understand to be confidential.
• Standard exclusions. Information that is publicly available, already known to the recipient, independently developed, or lawfully received from a third party is usually excluded.
• Permitted disclosures. Disclosure to employees, advisers and affiliates on a need-to-know basis, under similar obligations, and disclosure required by law or court order with prompt notice, are commonly allowed.
• Purpose limitation. The recipient should use the information only for the stated purpose, such as evaluating a transaction.
• Duration. NDAs specify how long the obligations last, often two to five years after disclosure or termination. Trade secrets may be protected for as long as they remain confidential.
• Restraint of trade. Post-termination non-compete clauses are generally void under Section 27. Non-solicitation and non-use clauses must be reasonable.
• Remedies. Courts can grant injunctions under the Specific Relief Act, 1963 and damages under the Indian Contract Act, 1872. The NDA should acknowledge that damages may not be an adequate remedy.
• Personal data. Where the information includes personal data, the NDA should require handling in line with the Digital Personal Data Protection Act, 2023 and its rules as they apply.
• Stamp duty. An NDA is generally chargeable to stamp duty as an agreement under the applicable state stamp law. The amount is usually modest, but an unstamped NDA is not admissible in evidence until the deficit and penalty are paid.
• Electronic execution. NDAs can be signed electronically under the Information Technology Act, 2000, subject to stamp duty requirements.

Stamp duty and data protection rules change from time to time. We check the current position at the time of drafting.

Step-by-Step Guide

1. Initial consultation. We understand why you are sharing information, with whom, and what type of information it is.
2. Choose the NDA type. We advise whether a one-way or mutual NDA is suitable, or whether a confidentiality clause in another agreement would be more appropriate.
3. Identify the information. We help you describe the categories of confidential information, such as technical, commercial, financial, customer or product information.
4. Set the purpose and duration. We define the permitted purpose and the period for which confidentiality obligations will apply.
5. Decide remedies and protections. We include clauses on injunctions, damages, return or destruction of information, non-solicitation where suitable, and restrictions on reverse engineering.
6. Drafting. We prepare the NDA with parties, recitals, definitions, obligations, exclusions, permitted disclosures, term, return of information, remedies, no licence, no obligation to proceed, governing law and dispute resolution.
7. Your review. You review the draft and we explain each clause in plain language.
8. Revisions and negotiation. We incorporate your feedback and respond to comments from the other party.
9. Execution. We guide you on stamping and signing, including electronic signature options. Stamp duty is paid at actual.
10. Record-keeping guidance. We advise on marking documents as confidential, recording what is disclosed and maintaining access logs.

Documents Checklist

For a company or LLP:

• Legal name, registered office address and CIN or LLPIN
• Name and designation of the authorised signatory
• Board resolution or authority letter, where required

For a partnership firm or proprietor:

• Business name and address
• Name of the partner or proprietor signing

For an individual:

• Full name, address and identity proof

Details of the other party:

• Legal name, address and signatory details

Information for drafting:

• Purpose of disclosure, such as evaluating a partnership, a vendor engagement or an investment
• Types of information to be shared
• Whether information will flow one way or both ways
• Desired duration of confidentiality obligations
• Any draft NDA received from the other party
• Preferred governing law and city for disputes

How Long It Takes

An NDA is usually ready within 1 to 2 working days from the date we receive the details. A typical timeline:

• Consultation: same day.
• Drafting: within one working day for a standard NDA.
• Your review and revisions: usually within one working day.
• Comments from the other party: depends on their response, with our revisions usually turned around the same or next working day.
• Stamping and signing: same day if e-stamping is available.

NDAs for complex transactions, multiple parties or cross-border disclosures may take a little longer.

Pricing

Our professional fee for a Non Disclosure Agreement (NDA) is ₹ 1,499.

This covers:

• Consultation on the purpose and type of NDA
• Drafting of a one-way or mutual NDA
• One round of revisions
• An explanation of key clauses
• Guidance on stamping, signing and record-keeping

Stamp duty is payable at actual as per the state law. Review of an NDA received from the other party, additional rounds of negotiation, NDAs governed by foreign law, and legal action for breach are quoted separately.

Common Mistakes to Avoid

• Overly broad definitions. Defining everything as confidential may make the NDA unenforceable in practice and difficult to comply with.
• Overly narrow definitions. Covering only documents marked confidential can leave oral discussions and demonstrations unprotected.
• Including a post-employment non-compete. Such clauses are generally void in India and may weaken the credibility of the agreement.
• No purpose clause. Without a stated purpose, it is harder to show misuse.
• Forgetting return or destruction. The NDA should require the recipient to return or destroy information on request or at the end of discussions.
• Signing after sharing. Information shared before the NDA is signed may not be covered unless the NDA expressly includes earlier disclosures.
• Not keeping records. Without evidence of what was shared and when, proving a breach becomes difficult.
• Ignoring stamp duty. An unstamped NDA can delay urgent court action, which is often when an NDA matters most.

What Happens After

After the NDA is signed:

• Mark documents shared under the NDA as confidential where practical.
• Keep a disclosure record, listing what information was shared, with whom and when.
• Limit access within both organisations to people who need the information.
• Monitor compliance and act promptly if you suspect misuse. Delay can weaken a claim for an urgent injunction.
• Request return or destruction of information when discussions end or the purpose is completed.
• Replace the NDA with confidentiality clauses in the definitive agreement if the relationship progresses.
• Diary the end date of confidentiality obligations, and extend the NDA in writing if needed.

If a breach occurs, our team can help with a legal notice and advise on seeking an injunction or damages.

FAQs

Is an NDA legally enforceable in India?

Yes. A properly drafted and stamped NDA is an enforceable contract under the Indian Contract Act, 1872. Courts can grant injunctions and damages for breach.

What is the difference between a one-way and a mutual NDA?

A one-way NDA protects information disclosed by one party to the other. A mutual NDA protects information disclosed by both parties to each other.

How long should an NDA last?

Commonly, confidentiality obligations last two to five years after disclosure or the end of discussions. Trade secrets can be protected for longer, as long as they remain confidential.

Can an NDA stop an employee from joining a competitor?

No. Post-employment non-compete restrictions are generally void in India. However, an NDA can prevent the former employee from using or disclosing your confidential information.

Does an NDA need to be notarised?

No. Notarisation is not required. The NDA must be properly signed and stamped as per the state stamp law.

Can an NDA be signed online?

Yes. Electronic signatures are valid under the Information Technology Act, 2000. Stamp duty must still be paid, and e-stamping can be used where available.

What happens if someone breaches an NDA?

The disclosing party can send a legal notice, seek an injunction to stop further misuse, and claim damages for losses caused. Acting quickly is important.

Is information shared before signing the NDA protected?

Only if the NDA expressly covers prior disclosures. It is better to sign the NDA before sharing any sensitive information.

Will investors sign an NDA?

Many investors do not sign NDAs at the initial pitch stage because they review many similar businesses. They are more likely to agree to confidentiality at the due diligence stage. Plan your pitch materials accordingly.

Can an NDA be part of another agreement?

Yes. Confidentiality clauses are commonly included in employment, service, consultancy and partnership agreements. A standalone NDA is used when no other agreement exists yet.

Does an NDA protect my idea?

An NDA can protect confidential details of an idea shared with the recipient. It does not give you ownership of the idea against the world. Patents, copyright, trademarks and designs provide that kind of protection where available.

Can an NDA be governed by foreign law?

Yes, where one party is foreign, the parties can choose foreign governing law. However, enforcement against an Indian party may still require proceedings in India.

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