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This document protects confidential information disclosed by individuals or businesses to each other during evaluation of business opportunities, negotiations, prior to investment or entering into transactions with each other. It creates an enforceable agreement between the parties that they will not disclose or use any confidential information for any purpose other than that set out in the agreement.
Non-Disclosure Agreements (NDAs), also known as Confidentiality Agreements, help parties feel comfortable revealing confidential information with commercial value that they might otherwise keep secret, so that commercial negotiations can continue openly and honestly.
Some examples of situations where a NDA/Confidentiality Agreement might be needed include:
(a) where a company is engaging a new employee or contractor who will have access to secret information, trade secrets or other valuable commercial information of the company;
(b) where two parties are investigating the possibility of an investment or business sale agreement with each other, and wish to discuss commercially sensitive information;
(c) where a new start-up or inventor has an idea it wishes to discuss with another party to test the possibility of an investment or partnership.
A Confidentiality Agreement makes it so that the party receiving the confidential information isn't permitted to disclose that information to anyone else or profit from the use of that information in an unauthorised way.
Like other contracts, confidentiality agreements require consideration which broadly means that a party must receive something in exchange for not disclosing information, this may be payment for provision of services, or even grant of an opportunity to evaluate a proposed investment.
How this document should be used
It can be used either where only one party is disclosing information (a 'one way' disclosure) or where two parties are sharing information with each other (a 'two way' disclosure) and can be modified to insert special terms that ensure that employees and clients cannot be approached or poached following any disclosure.
Once all the information has been filled in, the Non disclosure agreement would need to be printed on non-judicial stamp paper or e-stamp paper where such e-stamp paper is available in certain states. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding stamp duty payable can be found on the State government websites. For instance, the website of the state of Karnataka provides details of stamp duty payable on agreements.
Once the document is printed on the stamp paper, a printed copy of this document should be signed by the party which wishes to protect its confidential information and sent to the other party who will be receiving confidential information. That second party should then also sign and return a copy of the agreement. Alternately, both parties can meet and sign the document together.
Where the parties are companies, only the persons authorised by board resolutions should sign the agreement on behalf of the company.
The broad principles of contract under the Contract Act, 1872 and restraint of trade are applicable to non disclosure and confidentiality agreements.
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