What is a Non-Disclosure Agreement (NDA)? How Does It Work?

Introduction – Non-Disclosure Agreement

In today’s business environment, the exchange of sensitive information is almost inevitable. Whether it’s a company engaging a consultant, a start-up pitching to investors, or onboarding a key employee, confidential data is routinely shared. In such scenarios, most organisations turn to a Non-Disclosure Agreement, commonly known as an NDA, as their primary legal safeguard.

Non-Disclosure Agreement is a binding legal instrument, which is becoming a standard across most professional engagements, be it employment contracts, vendor discussions, or investor presentations. What makes it particularly important is that without a well-drafted NDA, businesses often have little or no legal ground to act if their confidential information ends up being misused or leaked.

While many businesses sign NDAs as a matter of routine, the truth is that the enforceability of NDA clauses depends as much on legal drafting as it does on how courts interpret fairness, intention, and the scope of obligations.

This article outlines the key components of a Non-Disclosure Agreement from the standpoint of Indian law. It explores the appropriate use of different types of NDAs, how to define exclusions, the distinction between unilateral and mutual NDAs, and how Indian courts have addressed breaches of confidentiality.

Legal Foundation of Non-Disclosure Agreements in India

A. Enforceability under the Indian Contract Act, 1872

Legally speaking, an NDA is another form of contract. If it satisfies the requirements laid down in Section 10 of the Indian Contract Act, 1872, it is enforceable. These include:

That both parties are competent to contract;
That consent is given freely and not under duress or fraud;
That the object of the contract is lawful;
That there exists lawful consideration (even if nominal);
And that the agreement isn’t expressly declared void.

However, Section 27 of the Indian Contract Act raises interpretational challenges, as it prohibits agreements that restrain trade. Indian courts have closely scrutinised confidentiality clauses to assess whether their scope or duration may effectively operate as a restraint, thereby rendering them unenforceable.

While confidentiality obligations and restraints of trade are distinct in principle, NDAs that attempt to restrict a former employee from joining a competitor solely based on access to general know-how may be deemed unreasonably restrictive and risk being invalidated by the courts.

B. Role of the Information Technology Act, 2000 in Digital Disclosures

Most confidential data today is exchanged not across tables, but via email threads, cloud folders, encrypted chat channels, and shared links. In that context, the provisions of the Information Technology Act, 2000, gain relevance.

Two sections are routinely cited alongside an NDA in India:

Section 43 penalises unauthorised access, downloading, copying, or extraction of data.
Section 72, which deals with breach of confidentiality by someone who had lawful access to electronic data but misused it.

Hence, if a recipient of the sensitive information misuses it or forwards it without proper consent, both the NDA and these statutory provisions can be invoked. While drafting an NDA, reference is made to the IT Act, especially where the NDA governs a remote engagement, tech development, or outsourced SaaS access.

C. Equitable Duties of Confidentiality – Beyond Contractual Text

Interestingly, even in the absence of a formal NDA, Indian courts have, on occasion, held that a duty of confidentiality can exist. This arises from principles of equity and fiduciary obligation.

For example, if a business shares sensitive information with a prospective investor in good faith, even without an executed NDA, there could still be an expectation that the information won’t be leaked or used unfairly. Courts have sometimes recognised such moral or equitable duties and granted interim relief, particularly where irreparable harm was likely.

That said, relying solely on unwritten or implied obligations is legally precarious. While equitable principles may strengthen a claim, they do not offer the certainty or enforceability of a properly drafted confidentiality agreement. Moreover, equitable relief is discretionary and heavily influenced by the specific facts and conduct of both parties involved.

Types of Non-Disclosure Agreements

In drafting a confidentiality agreement, the question that often arises at the outset is whether the obligation to maintain confidentiality is to be placed on a single party or whether it is to be mutually shared by both. While in theory this decision seems procedural, in practice it influences nearly every clause that follows, from definitions to remedies.

A. One-Way/Unilateral NDA

In most cases involving service providers, independent consultants, temporary advisors, and even early-stage interactions with vendors or potential hires, the NDA that is signed is unilateral or one-sided. The recipient has no intention to disclose anything sensitive in return, and therefore, the structure adopted is a one-way or unilateral NDA.

Such types of NDA’s are standard for internal human resource roles, freelance engagement letters (especially where software code, financial data, or strategy decks are involved), and one-off consulting deliverables. The agreement here generally requires the recipient of confidential information to:

(i) not disclose such information to any third party,
(ii) not use such information for any purpose other than the specific engagement or discussion,
(iii) take at least the same degree of care as it uses for its data (although this is often qualified by minimum standards of commercial reasonableness).

The enforceability of NDA provisions in a unilateral format becomes easier when the information flows only one way. Courts generally uphold these agreements, provided the scope is not disproportionately broad. But if a clause attempts to bar the recipient from future employment or participation in the industry, it starts bordering on restraint of trade under Section 27 of the Contract Act, and enforceability becomes suspect.

B. Mutual NDA

In matters where both parties are sharing confidential information and both are obligated to protect it, a Mutual NDA is taken up for consideration.

A Mutual Non-Disclosure Agreement (NDA) is not simply a combination of two unilateral NDAs. Its enforceability depends on carefully harmonized provisions, where definitions, exclusions, duration of obligations, and enforcement mechanisms are symmetrically drafted. Even minor drafting disparities can lead to material legal consequences.

Below is a comparative reference chart for both types of NDA’s:

Feature	Unilateral NDA	Mutual NDA
Disclosure pattern	Only one party shares sensitive data	Both parties exchange data
Use cases	Employees, consultants, investor decks	JV talks, M&A, co-building engagements
Drafting complexity	Relatively straightforward	Requires symmetric clause crafting
Key risk	Recipient misuse	Imbalanced drafting / uneven terms
Usual pitfalls	Overbroad definitions	Inconsistent exclusions or remedies

Essential Clauses to Include in an NDA

One of the common issues with generic NDA formats circulating across the internet and websites is the tendency to overlook drafting precision. A well-drafted Non-Disclosure Agreement must reflect not only the business terms but also anticipate operational realities, regulatory nuances, and future disputes. Certain key clauses should never be skipped and, more importantly, never be left open-ended.

A. Definition of “Confidential Information”

Defining the Confidential Information is perhaps the foundation of the entire NDA. Yet in many drafts, especially templated ones, it’s either too vague or overbroad. The idea is to capture what the disclosing party genuinely wants to protect, without making the definition so expansive that it becomes unenforceable.

Include tangible and intangible data: business plans, financials, technical specs, source code, etc.
Clarify whether oral disclosures are covered (often missed).
For startups, this clause should cover pitch decks, cap tables, and investor strategy.

B. Purpose of Disclosure and Use Limitation

This clause governs not just what information is disclosed, but why it’s being shared. A confidentiality agreement format must clearly state the business purpose.

Examples include:

“solely for evaluating a potential investment in the Disclosing Party”
“for the provision of technical support services during the Term”

Additionally, the restrictions should prevent the recipient from applying the data for any competing or derivative work. Without such limitation, courts may infer commercial intent and deny injunctive relief.

C. Term and Survival of Confidentiality

In practice, not all confidential data needs protection forever. However, some types (source code, trade secrets) may require long-term safeguards. Standard terms under the NDA are:

2 to 5 years from the Effective Date or termination; and
Perpetual confidentiality only for defined IP or third-party data.

Indian courts tend to disapprove of perpetual NDAs unless the clause is narrow. So the clause may state: “Obligations shall survive for 36 months from termination, except concerning source code, which shall survive indefinitely.”

D. Exceptions and Permitted Disclosures

A clause excluding certain types of information from the definition of “Confidential Information” is vital to avoid litigation later. Common exclusions include:

Information available in the public domain;
Data already known to the recipient;
Independently developed data; and
Data required disclosures by law or order.

E. Return or Destruction of Information

When the business relationship ends, the disclosing party needs assurance that their data will be erased or deleted.

This clause should cover:

Timeline for return or secure deletion;
Right to seek written confirmation of destruction; and
Handling of backups or stored data (especially with cloud tools).

Failing to include such terms often results in informal retention, leading to enforcement problems later.

F. Remedies and Indemnification

The NDA must provide mechanisms for redressal, remedies, and indemnification such as:.

Injunctive relief clause: permitting courts to issue immediate restraint orders;
Liquidated damages (optional, but should be reasonable); and
Indemnification for losses due to breach.

Some NDA’s also include a waiver of proof-of-damage, but the authorities have been cautious in enforcing those without context.

G. Governing Law and Dispute Resolution

The enforceability of NDA terms often collapses because of jurisdictional confusion.

Always specify Indian law if the transaction is India-centric.
Choose dispute resolution method (arbitration or courts); and
Mention the venue or the seat clearly (Delhi, Mumbai, etc.)

How NDAs Work in Practice

In practical business scenarios, the critical issue is seldom whether an NDA exists; it is what the parties understood it to mean, how it was implemented, and in many cases, what was overlooked or left ambiguous. Legal teams are often brought in only after a breach or misunderstanding occurs, by which point the damage may already be done. This underscores the importance of drafting NDAs with a view to their real-world application, not merely their theoretical ideal. A well-drafted NDA must align with the commercial realities of the engagement it governs.

Many companies fall into one of two extremes: either treating the NDA as a routine formality to be signed before a preliminary discussion, or overestimating its power as an all-encompassing safeguard. In reality, an NDA functions as a limited but important legal tool, whose effectiveness depends on the nature of the relationship it supports, be it employment, vendor services, or strategic transactions. The legal enforceability and practical expectations of NDAs in India vary depending on the context, and understanding this nuance is essential for both risk mitigation and effective compliance.

A. The Workflow is Never as Linear as It Seems

In most real-world scenarios, NDAs are often executed in a rushed or informal manner, circulated via email shortly before a meeting, signed on letterhead without negotiation, and subsequently forgotten. However, best practice dictates a more deliberate approach, where the terms are reviewed, aligned with the commercial context, and preserved for future reference, even if that ideal is not always followed in practice. Here is the approach to draft NDA:

A well-drafted Non-Disclosure Agreement (NDA) starts with selecting the right structure, unilateral for one-way disclosures, mutual when both parties share sensitive information.
Legal teams should be consulted early to ensure the NDA reflects the practical realities of the engagement.
Key terms like the definition of “Confidential Information,” duration, permitted use, and exclusions must be aligned between parties.
Equally important is implementation. NDAs are often rushed or treated as routine paperwork, but they must be signed before disclosures begin and stored accessibly.
Clear internal processes should govern what’s protected, how it’s shared, and what happens in case of breach. Without proper execution, even a well-drafted NDA loses its protective value.

B. Employment and Vendor Scenarios Are High-Risk, But Often Overlooked

When it comes to the employees, NDAs are either signed as a part of the appointment letter or attached as a short annexure. But in reality, many of these NDA’s aren’t tracked. When the employees exit, their devices are returned, and their access may or may not be revoked. The NDA, by then, is forgotten.

There are two key categories:

(1) Senior hires, especially in strategy, sales, or management-heavy functions.
(2) Interns or trial candidates, who work closely on real assignments before even being onboarded.

In both cases, the company discloses information that it later wants back, or at least wants to stop spreading. And unless the NDA includes a return/destruction clause, that expectation remains just that, an expectation.

For vendors, the confidentiality risk is significantly heightened, particularly in roles involving access to sensitive information, such as SaaS providers handling customer data or payroll firms processing salary records. In such cases, NDAs are not merely procedural; they are essential instruments of legal risk mitigation. Yet, many businesses fail to extend these obligations to subcontractors. Courts have increasingly flagged this gap, especially in light of evolving privacy jurisprudence and tightening regulatory expectations.

So if a vendor contract includes a confidentiality clause, but their data-processing subcontractor is not covered, the NDA may not protect a data leak legally. The confidentiality agreement must therefore be extended contractually, not just by policy.

C. Investment and Acquisition Contexts, Where Words Matter Most

In investor negotiations, it’s now standard for founders to insist on an NDA before sharing pitch decks or projections. But investors rarely sign long-form documents. The NDA here tends to be a 2-page document, focusing on:

Restricting sharing with external parties
limiting use for evaluation only
excluding any obligation for commercial feedback or discussions

The challenge lies in the fact that most NDAs don’t cover informal investor commentary. For example, if an investor attends a pitch and later mentions to another founder that “a company is working on something similar,” this typically doesn’t constitute a breach—unless the NDA explicitly extends to forward-looking discussions or strategic insights. In most cases, such clauses are either absent or too narrowly framed to offer protection.

In acquisitions, the NDA is longer. It often merges into a term sheet or is attached as an annexure to a data room access protocol. And these NDAs usually:

set longer survival periods
impose the return of documents post-failure
sometimes include anti-solicit or “no-poach” terms

Foreign investors, especially from the EU or the US, have now started including DPDPA-specific clauses as standard practice when accessing Indian user data. If this isn’t mutually acknowledged in the NDA, the deal can get stuck on compliance grounds.

D. Licensing, IP Co-Building, and Strategic Alliances

When two entities work together to co-develop a product, especially in pharma, SaaS, or media, the NDA often operates more like a foundation than a firewall. It establishes what each party can use, where they must stay silent, and how they’re supposed to part ways if the deal breaks down.

In these settings:

NDAs sometimes include “residuals” clauses, meaning that general ideas that remain in a recipient’s mind are not considered confidential.
Some clauses go so far as to prohibit reverse engineering, public announcements, or even reference to the existence of the NDA.

Here’s how the categories typically look in legal review:

Context	Type of NDA Used	What to Watch For
Mid-level employees	Inline clause or annexure	Lapse in post-exit reminders
Early-stage investor calls	Short mutual NDA	No protection on post-call references
Vendor onboarding	Separate vendor NDA	Subcontractor non-binding
M&A discussions	Mutual + anti-leak clause	Disclosure tracking, survival period
Licensing/IP deals	Detailed hybrid NDA	Reverse engineering, residuals, IP lock-up

Drafting Best Practices for Indian Businesses

A frequent and costly mistake is viewing NDAs as routine paperwork rather than essential legal safeguards. In practice, seemingly minor drafting oversights often become significant liabilities during disputes. Whether in venture-funded tech startups or manufacturing firms with distribution partnerships, a recurring issue is the disconnect between the written NDA and the actual risk exposure faced by the business.

A. Match the Structure with the Commercial Relationship

One of the most common issues while drafting an NDA is the parties using the wrong format altogether. A Non-Disclosure Agreement must reflect who’s disclosing what, and for what purpose. Many businesses reuse their old vendor NDAs even during joint product development or licensing talks. That’s a red flag.

For investor calls: Use a short-form, one-way NDA that protects cap tables, models, and internal strategy decks.
For partnerships: Use mutual NDAs with mirroring definitions and mutual indemnity provisions.
For employment or consulting: One-way NDA embedded within the appointment or consulting agreement usually works, but should be reviewed in every new hire batch.

And if dealing with international parties, the NDA must reflect the governing law, jurisdiction, and data transfer provisions. Otherwise, the enforceability of NDA terms becomes unpredictable.

B. Avoid Cut-Paste Language, Especially for Sensitive Scenarios

Another recurring error is using vague or inflated definitions of “Confidential Information.” Many confidentiality agreement formats begin with lines like “any information shared in any form during the relationship shall be confidential.” But the authorities don’t interpret such phrases generously.

In practice, the stronger drafts are those that:

Define categories (pricing, source code, marketing plans, client info);
Limit the scope to information marked or identified at the time of sharing.
Include a carve-out for public domain material, and disclosures required by law; and
Include specific purpose limitations.

C. Timeframes Must Be Realistic, and Legally Sustainable

A perpetual confidentiality clause may sound strong, but in reality, courts scrutinise them heavily. Unless the business is dealing with sensitive trade secrets (e.g., manufacturing formula, core algorithm), most NDAs should cap the survival period.

For vendor relationships, 2–3 years after termination is considered reasonable.
For licensing or M&A talks: 3–5 years is typical, but must be justified;
For employment NDAs: Duration should match notice period and IP exposure.

D. Update NDAs to Reflect Recent Regulatory Shifts

Post the introduction of India’s Digital Personal Data Protection Act, 2023 (DPDPA), the way information is stored, shared, and retained has changed. Many businesses still use older NDA formats that don’t account for this shift.

Where the data shared includes employee records, consumer insights, or behavioural analytics, the NDA must include:

Obligations around data minimisation and access control;
A destruction clause post-engagement or upon request; and
Restrictions on downstream processing (i.e., subcontractors or affiliates).

E. Internal Enforcement and Awareness Are Equally Critical

Even the most precisely drafted NDA can prove ineffective if internal teams are unaware of its scope and limitations. Breaches often occur not out of malice, but due to a lack of communication, when the agreement’s terms are neither shared nor clearly explained to those handling sensitive information. This is particularly true in:

Investor relations teams are forwarding decks without checking exclusions.
HR managers storing employee data post-resignation, long after the NDA has lapsed; and
Freelancers who weren’t bound by the NDA because it was signed only with the agency, not the individual.

So while legal teams can draft the best NDA possible, its effectiveness depends on whether operational teams treat it seriously. Training and documentation aren’t optional; they’re central to ensuring that the NDA is enforceable if challenged.

NDA vs Other Related Agreements

It often happens, especially in India’s startup or business ecosystem, that a single party signs two or three documents throughout the same discussion, and more often than not, at least one of them includes a clause titled “confidentiality”. That’s not necessarily a problem. But what tends to follow is confusion, such that if the document, such as an MOU, is already signed with a confidential clause, is there a need for an NDA, or does the employment contract already cover confidentiality?

There’s no one-line answer. But in most cases, the truth is that each of these instruments, NDA, confidentiality clause, MOU, and non-compete, serves a distinct legal purpose. It would be a mistake to assume they’re interchangeable.

A. NDA and Non-Compete Clauses, Not the Same, Not Enforced the Same

Some clients, particularly in HR and operations roles, think of NDAs as tools to stop employees from joining rival firms, but NDAs aren’t built for that purpose. A standard Non-Disclosure Agreement is meant to protect confidential information from being leaked or misused. It’s not supposed to restrict future career moves.

When businesses try to stretch the NDA to include language that starts looking like a restriction on trade, for example, “the employee shall not associate with any competitor for 24 months after termination”, it opens up a legal problem. Under Section 27 of the Indian Contract Act, such a clause is generally void. Unless there’s a sale of goodwill or a narrow IP licensing reason, non-compete clauses don’t hold up well.

B. Confidentiality Clauses Inside Employment Letters, Do They Replace NDAs?

Most employment offer letters these days include one clause, usually towards the end, titled “Confidentiality” or sometimes “Protection of Company Information.” Herein, the assumption becomes that if the confidentiality is already governed, then why is there a need for a separate NDA?

In an NDA, explicit information is provided on what qualifies as confidential, including exceptions (like public domain info), add a destruction clause after exit, or even state that certain disclosures require written consent. Most employment confidentiality clauses are too generic to include such terms.

Another issue is that the employment contract is often governed by local state Shops & Establishments laws or labour regulations. But NDAs can include arbitration, injunctive relief, and even cross-border jurisdiction if needed, especially relevant for tech companies working with foreign vendors or remote teams. Therefore, NDA’s are governed by such terms under the Indian Contract Act, 1872.

C. NDA vs MOU and Term Sheet: The Confusion Happens Early

When parties sit down for the first round of discussions, whether it’s an investor talking to a founder or a JV discussion between two companies, the first document that often gets signed is a term sheet or MOU. These are non-binding outlines, setting out what the deal might look like. And almost always, they include a clause on confidentiality.

Now here’s the thing: if the company shares a pitch deck or some very high-level summary, this may be enough. But if the company is sending spreadsheets, architecture flowcharts, and customer migration plans, then relying on that one clause is risky.

MOUs and term sheets aren’t always enforceable. And even when they are, the confidentiality language is rarely detailed. There’s no clear definition of what’s being protected, what’s excluded, who the information can be shared with internally, how long the protection lasts, or none of it.

The transactions have often collapsed because one party shared data under the MOU, assuming it was protected, and the other argued later that the MOU wasn’t binding, so neither was the clause. And unless there’s a separate NDA, that clearly survives even if the deal falls through, that argument holds weight.

This is particularly important for founders negotiating with multiple funds simultaneously. If one fund signs an MOU, and another signs an NDA, and you share the same data with both, but if a leak happens, the legal options may vary depending on what is signed with whom.

Standard advice: send the MOU or term sheet, but always accompany it with a standalone NDA.

Summary Table: Why the NDA Needs to Stay Separate

Agreement Type	Confidentiality Scope	Enforcement Strength	Suitable For
Employment contract clause	Limited, internal use	Moderate	Low-sensitivity roles
Non-compete clause	Restricts behaviour	Weak (under Indian law)	Should be separate from NDA
MOU/Term Sheet clause	General, not detailed	Often non-binding	Commercial intent, not protection
Standalone NDA	Detailed, custom	High	Data-heavy discussions, IP, etc.

Conclusion – Non-Disclosure Agreement

The Non-Disclosure Agreement remains one of the most routinely executed yet least examined legal documents in Indian commercial practice. Whether signed during hiring, investor outreach, or vendor onboarding, it is rarely revisited—until a breach occurs. At that point, businesses rely on the NDA for legal protection, often discovering too late that it was poorly drafted or misaligned with actual risks. That’s why the structure, language, and enforceability of an NDA must be treated with the same rigour as any core commercial agreement.

The legal validity of NDA instruments depends not on whether they’re signed, but on how they’re drafted and implemented.

From the Indian perspective, that includes:

Proper identification of what qualifies as “Confidential Information”;
Clear purpose of disclosure and use restrictions;
Carve-outs and permitted disclosures (to avoid ambiguity);
Survival periods that are reasonable and defensible;
Dispute resolution clauses, ideally specific, not boilerplate; and
For cross-border deals, jurisdiction and governing law must be declared.

However, a surprising number of Indian businesses still treat NDAs like an administrative checkpoint. Legal teams get involved late, or sometimes not at all. One party signs, the other doesn’t. Oral disclosures are assumed to be protected, but weren’t covered. Or the NDA was signed with one party while the actual disclosures happened with the other party.

These gaps are not abstract. Courts in India examine the enforceability of NDA terms quite closely. They ask whether parties acted fairly, whether the obligations were balanced, and whether the language was specific enough to justify relief.

So the NDA in India, as it stands today, is not just a shield; it’s also a reflection of how seriously a company approaches its proprietary data. Businesses that take it seriously build credibility. Those who don’t often find out, too late, that they never protected what mattered most.

If there’s one takeaway: Treat the NDA not as a standard formality, but as the first line of defence. That’s where the enforceability of NDA provisions begins.

FAQ SECTION – Non-Disclosure Agreement

1. Is an NDA enforceable in India?

Yes, a properly drafted and executed NDA is enforceable under Indian contract law. It must satisfy the requirements under Section 10 of the Indian Contract Act, 1872, i.e., valid consideration, competent parties, lawful purpose, and free consent. However, its enforceability also depends on proportionality. If the NDA is too vague, too long in duration, or indirectly acts as a non-compete, it may not be upheld.

2. Can I be sued for violating an NDA?

Absolutely. If you breach an NDA, say, by forwarding confidential documents to an outsider, or by reusing code shared during a freelance engagement, the disclosing party can seek legal remedies. These may include:

Injunction (to stop you from further misuse);
Damages (if quantifiable loss can be shown); or
Sometimes, reputational consequences (especially in employment or investor circles).

Under Indian law, the injured party must show breach, harm, and connection to the NDA.

3. What if I signed an NDA but forgot its terms?

You’re still bound. Once you’ve signed an NDA contract for business, forgetting the details doesn’t exempt you from the obligations. That said, courts may consider intention, communication history, and conduct. But this doesn’t cancel liability; it may only affect the nature of the remedy. Best practice: always store a copy of signed NDAs and revisit them before taking actions that involve client or partner information.

4. Can NDAs be used after employment ends?

Yes. NDAs commonly include clauses that survive termination of employment. These are often valid for 12–36 months after exit, depending on the sensitivity of the data. But, if those clauses attempt to restrict someone from joining a competitor or working in the same industry, courts may strike them down, unless they’re narrowly drawn and justified. In practice, what’s enforceable post-employment is confidentiality, not career control. That’s a key difference NDAs must maintain.

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