This article has been written by Sameera Khan from Amity Law School, Noida

INTRODUCTION

Non-Disclosure Agreements (NDAs) play a critical role in safeguarding sensitive information shared between parties. They protect proprietary information, trade secrets, and other confidential data from being disclosed to unauthorized individuals. Despite their importance, breaches of NDAs can occur, resulting in significant financial losses and damage to reputations. It’s essential to understand the legal remedies available for such breaches to manage and mitigate these risks effectively. This article delves into the various legal remedies that can be pursued when an NDA is violated, offering a thorough guide to addressing breaches and ensuring justice for the affected party.

NON DISCLOSURE AGREEMENT

A nondisclosure agreement (NDA) is a legally enforceable contract under the Indian Contract Act, 1872, which serves as a foundational framework for all contracts and agreements. This contract is designed to protect and maintain the confidentiality of sensitive information exchanged between parties, such as trade secrets.

NDAs, also referred to as confidentiality agreements (CA), confidential disclosure agreements (CDA), proprietary information agreements (PIA), secrecy agreements (SA), or non-disparagement agreements, are critical in preventing the exposure of a company’s trade secrets or sensitive information to competitors or unauthorized parties who might misuse it, causing irreparable damage to the disclosing party. Upon signing the NDA, the disclosing party and the receiver agree on what constitutes confidential information and what does not.

These agreements ensure that the exchanged information remains private and protect the intellectual property of the company. Typically, the disclosure of various types of information is required at the beginning of the negotiation process. The NDA obligates the parties to maintain confidentiality and not breach the agreement, as any violation could lead to legal consequences.

In India, primarily prevalent types of NDAs are –

Mutual NDAs: Also referred to as bilateral or two-way NDAs, these agreements bind all involved parties to mutually exchange certain confidential information while ensuring it is not disclosed to external entities. These are typically used in contexts such as mergers, acquisitions, and other business transactions.

Non-mutual NDAs: Known as unilateral NDAs, these agreements place the obligation of confidentiality on a single party, requiring them to safeguard sensitive information received from the other party. This type of NDA is commonly used in employer-employee relationships, where a new hire is required to sign the agreement to protect the employer’s confidential information.

Multiparty NDAs: Also called multilateral NDAs, these involve more than two parties and facilitate one party in sharing information that the other parties must keep confidential. Although less common, multiparty NDAs simplify the process by negating the need for multiple individual agreements between each pair of parties.

What Happens If You Breach a Confidentiality Agreement?

Breaching an NDA is considered a civil offense, as NDAs are legally binding contracts. Upon signing an NDA, the receiving party is obligated to keep the disclosed private information confidential. NDAs offer legal remedies and consequences for any breach of the agreement, including injunctions and indemnification. A breach can lead to significant monetary penalties and injunctive relief. Therefore, it is crucial to thoroughly read and understand an NDA before signing.

Why Should You Not Break a Confidentiality Agreement?

NDAs prevent the disclosure of sensitive information to third parties or the public and come with severe penalties for breaches. The agreement typically outlines the repercussions of violating the NDA, such as injunctions, indemnification, damages, job termination, and loss of business reputation and clients. A standard NDA includes clauses allowing the disclosing party to seek any legal remedies. Such broad terms should alert the receiving party to the serious implications of breaking the confidentiality commitments. It is always preferable to adhere to the confidentiality obligations rather than face the consequences of violating an NDA.

In India, NDAs are commonly used in various situations, such as:

– Presenting an invention or business idea to a potential partner, investor, or employee.

– Sharing financial information with a prospective partner or investor.

– Demonstrating a new product or technology to a potential buyer.

– Disclosing sensitive company information to an employee or contractor.

– Granting access to proprietary or confidential information to employees or contractors.

– Providing customer information to employees or contractors.

The parties involved in a Non-Disclosure Agreement (NDA) commit to several key responsibilities:

– They must safeguard the other party’s confidential information with the same level of care as they would their own sensitive data.

– Confidential information should only be shared with individuals who are authorized and need to know it for legitimate purposes.

– The use of confidential information is restricted to the purposes defined in the agreement.

– Any breaches or accidental disclosures must be promptly reported to the disclosing party, and immediate actions must be taken to retrieve and protect the compromised information.

Failing to adhere to these duties and obligations can result in legal repercussions.

REMEDIES FOR BREACH OF NDA IN INDIA

When a Non-Disclosure Agreement (NDA) is breached, several legal remedies can be pursued to address and mitigate the damage. These remedies ensure the protection of confidential information and provide recourse for the aggrieved party.

1. Temporary Injunction

Description: A temporary injunction aims to immediately stop the breaching party from further disclosing confidential information. It is a provisional measure taken to prevent further harm until the court reaches a final decision.

Relevant Provision: The grant of an injunction is governed by Order 39, Sections 94(c) and (e) of the Code of Civil Procedure, 1908, and Section 37(1) of the Specific Relief Act, 1963. These provisions allow courts to issue interim orders to preserve the status quo.

Example Case: In Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber, 1995 IIAD Delhi 426, the court granted a temporary injunction preventing the defendant from using confidential information, illustrating the court’s power to issue such orders to protect proprietary information during the litigation process.

2. Permanent Injunction

Description: A permanent injunction is issued to indefinitely prevent further disclosure of confidential information once the case is concluded.

Relevant Provision: Section 37(2) and Section 38 of the Specific Relief Act, 1963, outline the conditions under which a permanent injunction can be granted to restrain a party from acting in breach of their obligations.

Example Case: In Gujarat Bottling Co. Ltd. v. Coca-Cola Company, AIR 1995 SC 2372, the Supreme Court upheld the issuance of a permanent injunction to prevent ongoing or future breaches of the agreement, demonstrating the use of permanent injunctions to safeguard contractual rights.

3. Prohibitory Injunction

Description: Also known as a restrictive injunction, this legal directive requires a party to refrain from performing specific actions that would result in harm or the infringement of rights.

Relevant Provision: Section 38 of the Specific Relief Act, 1963, governs prohibitory injunctions, which are issued to prevent an imminent breach or the continuation of a wrongful act.

4. Damages

Description: Compensation awarded to the non-breaching party for any loss or damage resulting from the breach of the NDA.

Relevant Provision: Section 73 of the Indian Contract Act, 1872, provides for compensation for any loss or damage caused by a breach of contract. It ensures that the non-breaching party is put in the position they would have been in had the breach not occurred.

Example Case: In Kailash Nath Associates v. DDA, (2015) 4 SCC 136, the Supreme Court elaborated on the principles for awarding damages for breach of contract, emphasizing the need to compensate for actual loss sustained.

5. Liquidated Damages

Description: Pre-determined damages specified in the NDA, agreed upon by both parties at the time of contract formation.

Relevant Provision: Section 74 of the Indian Contract Act, 1872, deals with compensation for breach where a penalty is stipulated. The amount must represent a genuine pre-estimate of the loss likely to be caused by the breach.

Example Case: In Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405, the Supreme Court held that the liquidated amount should be a reasonable compensation, reflecting the actual anticipated loss.

6. Specific Relief

Description: The court may order the breaching party to perform their obligations under the NDA, providing a remedy when monetary damages are insufficient.

Relevant Provision: Section 10 of the Specific Relief Act, 1963, allows courts to enforce specific performance of contracts when damages are not an adequate remedy.

Example Case: In Gomathinayagam Pillai v. Pallaniswami Nadar, AIR 1967 SC 868, the Supreme Court outlined circumstances where specific performance could be ordered, ensuring the contract’s execution as originally agreed.

7. Account of Profits

Description: The non-breaching party can claim any profits made by the breaching party due to the breach of the NDA.

Relevant Principle: Based on equity principles, this remedy is not explicitly mentioned in the Indian Contract Act but is often applied in cases involving fiduciary duties and misuse of confidential information.

8. Rescission

Description: The non-breaching party may rescind the NDA, thereby releasing themselves from their obligations due to the breach.

Relevant Provision: Section 39 of the Indian Contract Act, 1872, allows a party to rescind a contract when the other party refuses to perform its promise entirely.

Example Case: In V. Lakshmikantham v. R. Sankaranarayana Pillai, AIR 1979 Mad 52, the court discussed the principles of rescission in the context of contract breach, highlighting the conditions under which a contract can be rescinded.

9. Legal Costs

Description: The non-breaching party can seek to recover the costs incurred in pursuing legal action.

Relevant Provision: Section 35 of the Code of Civil Procedure, 1908, allows courts to award costs to the successful party, ensuring they are compensated for their legal expenses.

Additional Legal Provisions

– Indian Penal Code: Sections 403 (dishonest misappropriation of property) and 405 and 408 (criminal breach of trust) can be invoked in cases of misappropriation of confidential information.

– Information Technology Act, 2000:Sections 43A (compensation for failure to protect confidential personal data) and 72A (punishment for disclosure of information in breach of lawful contract) address breaches involving personal data.

– Copyright Act, 1957: Sections 55 (civil remedies for infringement of copyright) and 63 (offense of infringement of copyright) provide additional remedies for breaches involving copyrighted material.

– Industrial Disputes Act, 1947: Sections 2(oo) (retrenchment) and 25F (conditions for retrenchment) may be relevant in cases involving the termination of employees due to NDA breaches.

These remedies collectively ensure that breaches of NDAs are addressed promptly and effectively, protecting the interests of the parties involved and maintaining the integrity of confidential information.

CONCLUSION

An NDA can safeguard employers’ confidential information and proprietary assets, which is essential for a company’s success in today’s competitive business landscape. The benefits include:

– Legal protection for confidential information, trade secrets, and other proprietary data shared with another party.

– Prevention of unauthorized disclosure by requiring the recipient to keep the information confidential and not share it with third parties.

– Legal recourse to seek damages and other remedies if there is a breach of confidentiality.

– Protection of intellectual property, such as patents, trademarks, and copyrights.

In conclusion, the remedies available for breach of a non-disclosure agreement (NDA) in India are robust and aim to protect the interests of parties involved in safeguarding confidential information.

The legal framework, primarily governed by the Indian Contract Act, 1872, and supplemented by provisions from the Specific Relief Act, 1963, provides several avenues for recourse in case of breach. These remedies include temporary and permanent injunctions to prevent further disclosure, damages to compensate for losses incurred due to the breach, specific performance to enforce compliance with the NDA terms, and other equitable remedies such as account of profits and rescission of the agreement. Additionally, legal costs and criminal liabilities under relevant statutes like the Indian Penal Code and the Information Technology Act, of 2000, may also be invoked depending on the circumstances of the breach.

It is essential for parties entering into NDAs to understand these remedies and ensure comprehensive protection of confidential information through carefully drafted agreements and diligent legal action when breaches occur.

REFERENCES

Knapp, J. (2024, June 4). Are NDAs Legally Binding in India? A Guide for Employers | Rippling. Rippling. https://www.rippling.com/blog/non-disclosure-agreement-in-india

SonamJaiswal_Edutech. (2024, June 5). Understanding Non-Disclosure Agreements (NDAs): Part 3. L&T EduTech. https://lntedutech.com/blogs/understanding-non-disclosure-agreements-ndas-part-3/#:~:text=A%20breach%20of%20the%20NDA,the%201872%20Indian%20Contract%20Act

Desk, S. (2023, December 6). Remedies For Breaches of an NDA Agreement. Vakilsearch | Blog. https://vakilsearch.com/blog/remedies-for-breaches-of-an-nda-agreement/

Twin, A. (2024, February 23). Non-Disclosure Agreement (NDA) Explained, With Pros and Cons. Investopedia. https://www.investopedia.com/terms/n/nda.asp

Pareekshit Bishnoi, & Pareekshit Bishnoi. (2020, April 21). Breach of confidentiality maintenance covenants amid “work from home” during COVID-19 lockdown: Concerns and remedies. Bar And Bench – Indian Legal News. https://www.barandbench.com/columns/breach-of-confidentiality-maintenance-covenants-amid-covid-19-concerns-and-remedies