A Non-Disclosure Agreement ("NDA") is a legally enforceable agreement that falls under the ambit of the Indian Contract Act, 1872, which serves as the umbrella legislation for all contracts and agreements. This agreement protects and maintains the confidentiality of vital information disclosed between the parties, including trade secrets.
NDAs are also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), secrecy agreement (SA), or non-disparagement agreement.
NDA protects a company's trade secrets or confidential information from being exposed to competitors or unauthorized parties who could use the information to damage the disclosing party irreparably. The disclosing party who shares confidential information with the receiving party agrees on what is considered confidential and not when they sign the agreement.
NDAs maintain the secrecy of information shared between the two parties and overall protect the business's intellectual property. The first step of the negotiations frequently presupposes the disclosure of various types of information. This necessitates that the parties remain bound by the NDA and do not violate it, as it may result in legal consequences.
What happens if you break a non-disclosure agreement?
An NDA violation is a civil wrong. NDAs are legally binding agreements. When the parties sign a NDA, the receiving party must keep the confidential information secret. However, if the receiving party chooses to disclose confidential information to a third party or an unauthorized entity, the party will face legal consequences or penalties.
NDAs not only bind the parties to keep confidential information private, but they also include legal remedies and penalties for any breach of the agreement, such as injunctions, indemnification etc. Breach of NDAs can result in significant monetary penalties, in addition to injuntive remedies. One should read a NDA very carefully before signing the same.
Why you should not violate a non-disclosure agreement?
NDAs deter persons from disclosing sensitive information to third parties or the general public, and severe penalties accompany them. In many circumstances, the agreement will specify the consequences of breaking the NDA. The following are some instances of penalties for violating an NDA: injunction, indemnity, damages, termination from employment, loss of business reputation, clients, etc.
A NDA would typically contain language that would entitle the Disclosing Party to resort to any legal remedies it deems fit. Such wide language in itself should sound a warning bell to the Receiving Party. It is better to comply with confidentiality obligations than breach a NDA.
Non-Disclosure Penalty Clause
It can be difficult to estimate the damages resulting from a breach of the confidentiality clause, as a result, a penalty clause that provides an appropriate value for the damage resulting from a contractual non-fulfilment may be beneficial. There is an added advantage of this clause if the penalty is already specified in the agreement, then there will be a fear of having to pay heavy damages, which would not exist if the party planned to strictly comply with the contractual obligations.
The penalties for violating the agreement are often laid out in the agreement, including injunction, indemnity, and damages. It is essential to mention that the Specific Relief Act of 1963 and the Code of Civil Procedure, 1908 govern these preventive reliefs.
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The non-breaching party may seek an injunction from the court to prevent the Receiving Party from sharing such confidential information. The purpose of applying for an interim or permanent injunction is to prevent the defendant (that is the Receiving Party) from committing any future breaches or causing any other form of harm to the aggrieved party (the Disclosing Party).
The Receiving Party must indemnify the Disclosing Party for any fees, expenses, or damages incurred by the Disclosing Party due to any breach of this Agreement's provisions. Court fees, litigation costs, and actual, reasonable attorney's fees are all included in this obligation.
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If the Receiving party violates an NDA, the Disclosing Party may file a lawsuit in court to prohibit additional disclosures and sue the violating party for monetary damages.
To conclude, NDAs are low-cost, simple-to-create legally binding agreements that keep private information secret between two or more parties. It is critical to be as specific as possible when drafting an NDA so that all parties understand what can and cannot be disclosed and the penalties for disclosing information. An agreement can be void if the language is overly broad, unreasonable, or onerous. The courts will also challenge or invalidate agreements that are unduly broad, oppressive, or attempt to contain non-confidential information. Also, if the information is made public, the Disclosing Party cannot enforce a NDA.
Always have a lawyer review an NDA before you sign the same. Look out for onerous terms and be very careful before putting your name to it.