Businesses often have valuable information they need to discuss with employees, consultants, vendors, investors, contractors, and other potential partners.

This can include details regarding business plans, pricing, customer information, technology, ideas, financials, and trade secrets.

A Non-Disclosure Agreement (NDA) helps establish rules around how such information can be used and disclosed.

1. What Is a Non-Disclosure Agreement?

A Non-Disclosure Agreement (NDA) is a contract under which one or more parties agree to protect confidential information shared between them.

For example, a startup may share its product roadmap with a potential investor, or a company may share customer data and pricing information with a consultant.

The NDA can establish that the recipient:

• Uses the information only for the agreed purpose.

• Does not disclose it to unauthorised persons.

• Takes reasonable steps to protect the information.

• Returns or deletes confidential information when required.

• Remains bound by confidentiality obligations for the agreed period.

An NDA can therefore provide a clear legal framework before sensitive information is shared.

2. Why Should Businesses Use an NDA?

2.1 Protects Sensitive Business Information

Businesses may have valuable information that is not publicly available.

An NDA can protect information such as:

• Business plans

• Pricing and financial information

• Customer and supplier information

• Technology and source code

• Marketing strategies

The agreement helps establish clear expectations about how the information can be handled.

2.2 Protects Information During Business Discussions

Businesses often need to share confidential information before entering into a formal relationship.

For example, an NDA may be used before:

• A potential investment

• A merger or acquisition discussion

• A joint venture

• A product collaboration

• Outsourcing work

The NDA allows discussions to take place with a defined confidentiality framework.

2.3 Creates Clear Obligations for the Recipient

Without a written agreement, parties may have different expectations about what information can be shared or used.

An NDA can clearly state:

• What information is confidential.

• Why it is being shared.

• Who can access it.

• How it can be used.

• What happens after the relationship ends.

This reduces ambiguity between the parties.

3. Key Clauses in an NDA

3.1 Definition of Confidential Information

This is one of the most important clauses in an NDA, as the agreement should clearly state what information is considered confidential.

Depending on the context, this may include business plans, customer information, financial information, technology, designs, source code, pricing, and trade secrets.

A well-drafted definition should be broad enough to ensure that all confidential information is protected but not too vague to provide reasonable clarity.

3.2 Purpose of Disclosure

The NDA should state the purpose for which the disclosing party provides the information.

For example, this may be “exploring a business partnership.” In most cases, the receiving party should only be able to use the information for the specific purpose outlined in the agreement.

This prevents the recipient from using the information for an unrelated goal.

3.3 Receiving Party’s Obligations

An NDA typically requires the receiving party to

• keep the information confidential,

• use it only for the stated purpose,

• not disclose it to third parties,

• limit access to those who need it to know,

• take reasonable measures to protect it.

These are the basic obligations that most NDAs require the recipient to uphold.

3.4 Exceptions to Confidential Information

Not all information is confidential, and an NDA should include exceptions to the confidentiality rule. The most common exceptions include information that

• is already publicly available,

• was independently developed by the receiving party,

• was known to the recipient before receiving it from the disclosing party,

• is obtained from a third party legally,

• must be disclosed by law.

The NDA should include exceptions to ensure that the agreement is not overly broad.

3.5 Duration of Confidentiality

The NDA should state how long the confidentiality obligations last.

For example, it may specify that the obligations are perpetual or only apply for a certain period after disclosure or termination of the agreement. In some cases, it may be appropriate to have different durations for different types of information.

In most cases, the duration should not be longer than necessary to protect the disclosing party’s legitimate business interests.

For truly valuable information, such as trade secrets, confidentiality should be maintained for as long as possible depending on the law in the relevant jurisdiction.

3.6 Return or Destruction of Information

When the disclosing and receiving parties end their business relationship, the disclosing party may want the recipient to return or destroy the information.

The NDA should state when this should happen and whether the recipient must delete any electronic copies of the information.

It should also specify whether the recipient must certify that it has deleted the information and whether there are any exceptions, such as legal requirements to retain the information.

3.7 Consequences of Unauthorized Use or Disclosure

The NDA should outline the consequences of the receiving party’s unauthorized use or disclosure of the information.

In most cases, the disclosing party is entitled to seek remedies in a court of law, such as damages and injunctive relief.

However, the NDA should not state that a particular remedy is automatically available simply because it is included in the agreement.

4. Common Mistakes When Using an NDA

4.1 Making Everything “Confidential”

4.2 Using the Same NDA for Every Purpose

4.3 Forgetting the Purpose

4.4 Ignoring Information Already in the Public Domain

4.5 Assuming that an NDA Protects Intellectual Property Ownership

Disclaimer: This article is for general educational purposes and does not constitute legal advice.

Frequently asked questions

Difference between One way NDA and Mutual NDA?

A One-Way NDA is generally used when only one party is expected to disclose confidential information.

A Mutual NDA is used when both parties are expected to exchange confidential information.

Can an NDA prevent someone from starting a competing business?

An NDA primarily protects confidential information and restricts its unauthorised use or disclosure. It should not automatically be treated as a general non-compete agreement. Restrictions on carrying on a lawful profession, trade or business require particular care under Indian law.

How Much Does an NDA Cost in India?

There is no fixed government-prescribed professional fee for drafting an NDA.

Broadly, professional fees may be:

• Basic NDA: ₹7,500–₹15,000+

• Customized NDA: ₹15,000–₹30,000+

Is an NDA the same as an IP Agreement?

No. An NDA primarily deals with confidentiality. An IP Agreement may deal with ownership, assignment, licensing or permitted use of intellectual property.

What happens if someone breaches an NDA?

The consequences depend on the agreement and applicable law. The affected party may have contractual and other legal remedies, which can include seeking damages or appropriate injunctive relief.

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