Are NDAs legally binding in India? A guide for employers [2024]

If you're hiring in India, non-disclosure agreements (NDAs) can help you protect sensitive business information. Implementing them correctly ensures that new employees and third parties treat your business plans, trade secrets, and other kinds of proprietary information with caution.

But NDAs aren't guaranteed to hold up in Indian court of law, as terminated employees are entitled to protections against confidential information that interferes with them being able to reasonably find future work.

Read on to discover how NDAs are used in India, what they should include to make them enforceable, and pitfalls to avoid before invoking them.

What is an NDA?

A non-disclosure agreement (NDA) is a legal contract that prohibits one or more parties from sharing information with third-party people or entities. In an NDA, all signees are consenting to not release the sensitive information stipulated in the contract to the public or to anyone outside the parties involved.

NDAs are often used to protect a company’s confidential information outside of the workplace. They can also ensure employees don’t divulge any sensitive information after they leave the company. Protected information can include:

• Trade secrets
• Proprietary technology
• Business plans, strategies, and tactics
• Personal information of clients or co-workers
• Any information not intended for public consumption

Are NDAs enforceable in India?

For the most part, Indian authorities hold up NDAs as enforceable, governed by the Indian Contract Act of 1872 and decided by courts to be different from certain kinds of outlawed restrictive agreements, so long as they don't restrain an employee from carrying out a separate job in the future.

While not required, NDAs gain credibility if they're certified under India's Registration Act. They also must meet requirements for being reasonable and within the public interest.

To ensure a confidentiality agreement stays legally binding, it should include the full names of the consenting parties, a thorough definition of the information that can’t be disclosed, situations where the NDA is nullified, and reasonable provisions for maintaining confidentiality after an employee is terminated.

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3 things you need to know about NDAs in India

1. There are different types of non-disclosure agreements

In India, there are two types of NDAs you're most likely to encounter:

• Mutual NDAs, also known as two-way or bilateral NDAs, are a type of agreement where all parties in the NDA are contractually bound to share certain information with one another, but no one outside the agreement. Mutual NDAs are often part of mergers, acquisitions, and similar kinds of business deals.
• Non-mutual NDAs, also known as unilateral NDAs, work one way, requiring one party in the agreement to receive sensitive information without leaking or sharing it with anyone else. These types of NDAs are more common in employer-employee relationships and are often signed by a new employee when they are hired.
• Multiparty NDAs, also known as multilateral NDAs, are set up between more than two parties. While these are less common, they allow for one party to disclose information that the other two parties are expected to keep private, eliminating the need to create multiple NDAs.

2. There are essential components to make NDAs enforceable

These are the things that an NDA should include to be comprehensive and enforceable:

• Clear indication of the parties involved. This should include their names and roles, including who will be sharing and receiving confidential information (i.e. the disclosing party and the receiving party) and who they will be sharing such information with.
• Definition of confidential information. This should include the general topic of information covered by the NDA, as well as the scope of information that's covered. It should also define how confidential information is shared; for example, is written information considered confidential but oral information is not?
• Exclusions from confidentiality. If there are any cases when parties in the NDA are allowed to disclose confidential information (for example, after it's been made public), those should be included in the contract.
• Terms of the agreement. How long does the NDA last? For employment NDAs, they typically last for the duration of the working relationship, but they can last longer.
• What will happen if the NDA is breached. It's a good idea to include provisions that outline any injunctions, damages, or other consequences for breaching the NDA, as well as a dispute resolution clause that spells out how the dispute will be resolved.

3. There are legal requirements for trade secrets to be protected under NDAs

In March 2024, the 22nd Law Commission of India released a Trade Secrets and Economic Espionage Report with new recommendations on trade secrets protection. In the Protection of Trade Secrets Bill, 2024, included in the report, it is stated that trade secrets must meet all four of the following criteria to satisfy the courts:

• Information that is not widely known or accessible
• Information that has commercial value due to its secrecy
• Information has been protected through reasonable steps
• Information whose disclosure is likely to cause damage to the holder

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When would an employee or contractor sign an NDA?

It's common for employees and contractors in India to sign NDAs during their onboarding or when they start a new work contract. An NDA may also be included as a confidentiality clause in a new hire's offer letter or employment contract.

Frequently asked questions about NDAs in India

Are NDAs enforceable in India?

By law, an NDA is considered a legally binding contract in India. Indian high courts have historically upheld them as long as they adhere to the Indian Contracts Act, and are not restrictive agreements that restrain signees from carrying out a lawful profession in the future.

However, it's important to note that employment laws and other regulations that affect NDAs can change, and there's been a growing international push to crack down on NDAs designed to cover up sexual harassment and other forms of workplace misconduct. What's more, courts haven't firmly decided whether it's reasonable for trade secrets to be covered by an NDA after an employee contract is terminated.

Are NDAs enforceable overseas?

The enforceability of an NDA in India overseas depends on the specific terms of the agreement, as well as the laws of the country where the NDA is being enforced.

In general, an NDA that is valid and enforceable in India may also be enforceable overseas, particularly in countries that recognize and enforce foreign judgments. However, there are many factors that can affect the enforceability of an NDA in a foreign jurisdiction, such as differences in legal systems, cultural norms, and public policy considerations.

What information can be covered by an NDA?

In India, information that's considered confidential or proprietary can be covered by an NDA. This includes:

• Trade secrets and proprietary information. This can include things like manufacturing processes, formulas, designs, and technology that are unique to a company and provide a competitive advantage.
• Financial information, including confidential financial statements, budgets, sales figures, and projections.
• Customer information, like customer contact information, purchasing history, and preferences.
• Employee information. This can include information about employees, such as their salaries, job duties, and performance evaluations.
• Intellectual property, which can include patents, trademarks, copyrights, and other types of intellectual property that are owned by a company.

Any information that's publicly known or part of the public domain cannot be covered by an NDA. NDAs also shouldn't be used to prevent whistleblowers from disclosing criminal activity by a company.

When should you use an NDA?

Common situations to use an NDA in India include:

• When an invention or business idea is being presented to a potential partner, investor, or employee
• When financial information is being shared with a potential partner or investor
• When a new product or technology is being shown to a prospective buyer
• When sensitive company information is shared with an employee or contractor
• When access to proprietary or confidential information is given to employees or contractors
• When customer information is shared with employees or contractors

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Is an NDA the same as a confidentiality agreement?

Yes. NDAs and confidentiality agreements all mean the same thing. In India, NDAs can also be known as secrecy agreements (SAs), confidential disclosure agreements (CDAs), or proprietary information agreements (PIAs).

Is an NDA the same as a non-compete agreement?

No. An NDA is different from a non-compete clause or non-solicitation agreement. While both types of agreements are used to protect a company's interests, they serve different purposes.

A non-compete agreement is a contractual agreement between an employer and an employee that restricts the employee from engaging in certain competitive activities for a specified time period after leaving the company.

The purpose of a non-compete agreement is to prevent a former employee from taking knowledge, skills, and business opportunities acquired during employment and using them to compete with your company.

Benefits of an NDA in India

An NDA can help protect employers' confidential information and proprietary assets, which can be crucial to a company's success in today's highly competitive business environment. Benefits include:

• Legal protection for confidential information, trade secrets, and other proprietary information that is disclosed to another party.
• Prevention of unauthorized disclosure of confidential information by requiring the recipient to keep the information confidential and not to disclose it to third parties.
• Legal recourse to seek damages and other remedies under the terms of the agreement in case of a breach of confidentiality.
• Protection of intellectual property, such as patents, trademarks, and copyrights.

What happens if an NDA is breached?

The penalties for breaching an NDA can vary, depending on the severity of the breach, what penalties are outlined in the NDA, and whether the breach of contract violated any laws. But an NDA is a legally binding contract, so any breach means legal action can be taken against the violating party. The NDA should have a "breach of this agreement” clause that outlines expected consequences.

Also keep in mind that mishandling someone's confidential information may constitute a criminal breach of trust under India's Penal Code.

How long can an NDA last in India?

While confidentiality agreements generally last between two and five years in India, they can theoretically last forever. Some trade secrets can be sealed in perpetuity, lasting longer than an employer-employee relationship. When drafting an NDA, make sure to stipulate the duration if you have a timeframe in mind.

When is information not confidential?

NDAs may unwittingly seek to protect information that's not confidential. This can happen when the information is:

• Already known within the industry
• Becomes known through a separate party
• Was already known by the signee
• Discovered by the signee through research

In these cases, the information would no longer be protected under the NDA.

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