What is a Confidentiality Agreement?
A Confidentiality Agreement is a legal document between two parties that prevents the release of information, ideas, transaction details, and more to third parties. It’s common for businesses to use these agreements during interactions with potential purchasers, clients, or hires to ensure confidential or proprietary information isn’t released or misused to the detriment of the owner.
The document formalises relationships between parties and guides behaviour and use of the information. It also acts as evidence of an agreement in court upon the release of confidential information.
A Confidentiality Agreement is also known as the following:
- Non-disclosure agreement (NDA)
- Confidential disclosure agreement
- Proprietary information agreement
- Secrecy agreement
Who are the parties in a Confidentiality Agreement?
A Confidentiality Agreement has two parties:
- Information Provider: The party disclosing sensitive information for a specified purpose.
- Information Recipient: The party receiving the sensitive information. They sign the Confidentiality Agreement to promise the Information Provider they will not release or misuse the information and will use it only for the specified purpose.
For example, when an employer and employee sign a Confidentiality Agreement, it’s usually to prevent sharing the employer’s private information. In this instance, the employer is the disclosing party, and the employee is the recipient.
When should I sign a Confidentiality Agreement?
A request to sign an agreement shouldn’t be taken personally. Think of the document as a substitute for trust. If an individual or business doesn’t know you, a Confidentiality Agreement is an easy way to ensure you don’t share sensitive information with competitors while building trust.
You should sign a Confidentiality Agreement when it’s necessary to protect confidential information, inventions, ideas, or artist creations during discussions, proposals, and negotiations. Common scenarios include the following:
- When an employer wishes to protect company information while negotiating a position with a potential new hire or giving new responsibilities to an existing employee.
- A client wishes to keep their company or personal information private when considering an independent contractor or consultant.
- During a pending company acquisition, when the seller wishes to keep the proposed terms of the agreement and company information private (e.g., the research or "due diligence" phase).
- When two or more businesses or individuals wish to begin working together, and the parties want to keep certain information discussed in negotiations in confidence (e.g., a joint venture, merger, partnership, etc.).
If you’re an employer hiring new employees, a more detailed Employment Contract can better outline confidentiality regulations between an employer and employee.
When is information not confidential?
Information is not confidential when it’s:
- Already known in the industry
- Becomes publicly known through no fault of the recipient
- Already rightfully in the recipient’s possession
- Created by the recipient through the recipient's independent research
- Rightfully disclosed and obtained from a third party
Can a Confidentiality Agreement last forever in India?
The obligations created by Confidentiality Agreements in India typically last between two and five years, but some obligations can last indefinitely. It’s common for Confidentiality Agreements to extend beyond the duration of a business relationship if the sharing of trade secrets took place. Trade secrets can include methods, recipes, techniques, etc.
Confidentiality laws in India are governed by The Indian Contract Act, 1872.
How can a Confidentiality Agreement be breached?
The recipient will be in breach of their obligations under a Confidentiality Agreement if they mishandle, misuse, release, or otherwise use the disclosed confidential information other than for the purpose specified in the document.
Dishonest use of someone’s confidential information can also amount to a criminal breach of trust under Section 405 of India’s Penal Code.
How do I create a Confidentiality Agreement in India?
You can create a Confidentiality Agreement by completing LawDepot’s questionnaire. Using our template ensures you complete the following necessary steps:
1. Provide the relationship between the parties
The types of details you’ll need to provide in your Confidentiality Agreement will depend on the relationship between the information provider and the recipient. The types of relationships you can choose from include:
- Employment/Service: Disclosing information to an employee or contractor
- Purchase/Sale: Disclosing information as part of a potential sale
- Invention: Disclosing information about an invention
- Other: Describe the circumstances in which the information is being provided
2. State the parties’ location
States and territories in India may have differing confidentiality laws. Select the state or territory where your business will take place, and we’ll tailor your Confidentiality Agreement to meet the laws and regulations of your location.
You can use LawDepot’s Confidentiality Agreement template in:
- Andaman and Nicobar Islands
- Andhra Pradesh
- Arunachal Pradesh
- Assam
- Bihar
- Chandigarh
- Chhattisgarh
- Dadra and Nagar Haveli
- Dadra and Nagar Haveli and Daman and Diu
- Daman and Diu
- Goa
- Gujarat
- Haryana
- Himachal Pradesh
- Jammu and Kashmir
- Jharkhand
- Karnataka
- Kerala
- Ladakh
- Lakshadweep
- Madhya Pradesh
- Maharashtra
- Manipur
- Meghalaya
- Mizoram
- Nagaland
- National Capital Territory of Delhi
- Odisha
- Puducherry
- Punjab
- Rajasthan
- Sikkim
- Tamil Nadu
- Telangana
- Tripura
- Uttar Pradesh
- Uttarakhand
- West Bengal
3. State the information needing protection
A Confidentiality Agreement protects the disclosure of various types of information, such as:
- Accounting information: accounting procedures, payroll, software, reports, etc.
- Business operations: employer and employee personnel data and any internal cost information and operational procedures.
- Customer information: any information relating to an employer’s customers or clients, including client lists, contracts, and business relationships.
- Intellectual property: an employer’s patents, trade secrets, proprietary software or production processes, copyrights, and other test data. It may also apply to computer technology and scientific information used by an employer.
- Marketing information: any information, campaigns, or projects an individual or business wishes to conceal from third parties.
- Product and service information: procedures, packaging, equipment, and techniques used to produce a product or service.
- Proprietary computer technology: any information relating to unique computer applications, tools, or systems.
4. Provide each party’s information
Provide the information provider’s and recipient’s name and address in your Confidentiality Agreement. Also, include whether the provider is an individual or a company/partnership.
In some cases there may be more than one recipient or provider - for example, if a company hires a partnership, all the partners may need to sign. LawDepot’s questionnaire takes account of these possibilities.
If the recipient is an employee or contractor, also include their job title and a description. This will make it clear why the employee will have access to the employer’s confidential information.
5. Describe the business or asset for sale (for purchase/sale)
Provide the name of the item up for sale and describe what it is.
6. Describe the permitted use of the confidential information (if applicable)
If you selected the “other” type of agreement at the beginning of the questionnaire, describe in your own words how the recipient is permitted to use the confidential information.
Use specific wording if the recipient can only use the information for a particular purpose. Use general language for more general purposes.
7. Outline the terms of the agreement
State whether the Confidentiality Agreement will end on a specific date or continue indefinitely. Also, include whether there are non-compete or non-solicit clauses and when they end.
What is a non-compete clause?
A non-compete clause restricts the recipient from starting a competing company or disclosing confidential information to competitors. However, it’s important to note that it can’t prevent people from working for competitors.
Note that a non-compete clause will likely be unenforceable under the Indian Contract Act, 1872, unless it’s fair and reasonable, both in terms of the business endeavour it affects and the period it covers.
What is a non-solicit clause?
Non-solicitation clauses are often included in Confidentiality Agreements among businesses during early discussions regarding transactions. This clause restricts the purchaser from hiring the employees of the seller.
Most non-solicit clauses last one or two years, but they can extend for longer periods as well. However, it’s important to note that a court may not uphold this clause if it deems the length of time unreasonably long for the particular situation.
8. Include any additional clauses
If there are any terms or conditions unique to your situation that the questionnaire didn't address, you can include them here.
9. Outline the signing details
State when the parties will sign the Confidentiality Agreement and if witnesses will be present.
It is a good idea to have witnesses present for the signing, even though most documents and contracts don’t require a witness for them to be legally valid. Many banks and other institutions have their internal policies about signing requirements. They may refuse to accept documents signed without a witness even though the documents are legally valid.
Your Confidentiality Agreement doesn’t require stamp paper to be legally valid. However, non-judicial stamp paper increases the likelihood a court views the contract as legitimate and therefore enforceable.
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