3 Things to Remember while Signing a Non Disclosure Agreement
Lawyers at VakilSearch show you the way
A non-disclosure agreement, as the name suggests, is nothing more than a promise not to reveal any confidential information that you acquire in the course of your relationship. We saw in the last part the difference between a Patent and a Non Disclosure Agreement. You can read that by clicking here
In this part, we shall look at 3 important pointers to keep in mind while preparing your Non Disclosure Agreement.
Include EVERYTHING you believe is important
There is an adage that goes – If you ask the wrong questions, you get wrong answers. Ask yourself one question and one question only – What do I want to protect myself against?
List down whatever it is that comes to your mind. You can check a list containing everything possible here.
Normally, apart from just information, people include things like drawings, blueprints, recordings and voice files, images, slides and transparencies and lots more.
Remember that the law does not put any cap on the number of things you include in your agreement, but what you do not include can come back to bite you.
Secondly, and this is equally important, stress on what you feel is important. So for instance, mention the parts of the agreement that are extremely important in a separate paragraph / a separate clause. This will help in highlighting that section or that provision.
Have a stringent penalty clause
In a Non Disclosure Agreement, if the other side defaults, depending on the nature and sensitivity of the business, you could suffer severe losses. So take care to mention the penalty very clearly.
There is no legal limit on the penalty, but an unreasonably high penalty will be struck down by the Courts. So while you have to be reasonable, you can incorporate a penalty that makes the other side think twice before disclosing any confidential information.
An intelligent lawyer will advise you to include an amount: Say Rs. X lakhs, in the event that the information is disclosed. This is a good step because then if the matter goes to Court, you will have a clear basis on which to demand compensation.
In law, this is called “liquidated damages”. Remember to include liquidated damages in your agreement as well.
Ask for mediation / arbitration rather than Court proceedings
We advise all our clients to choose mediation or an arbitration over a Court proceeding. Why?
For two reasons:
Mediation / Arbitration are much cheaper. Well, Arbitration isn’t really, these days. But mediation certainly is. Mediation gives you and the other side a chance to sit down and discuss issues face to face, rather than only through a lawyer.
Secondly, mediation does not destroy a relationship the way a Court proceeding can. Parties at the end of mediation can resume commercial and personal relations, whereas a Court proceeding usually means the end of all interaction between the parties.
So how should this reflect in your agreement?
Include an arbitration clause which reads as follows:
“Any dispute arising between the parties shall be resolved by mediation, and in the event that efforts to mediate a resolution of the dispute fail, by means of binding arbitration between the parties, with an arbitral panel consisting of three arbitrators; one arbitrator being appointed by each of the parties and the third arbitrator being appointed by the other two arbitrators so appointed”
What we saw in this article are three simple steps that could save you a lot of time, money and hassle in the future. It is always cheaper to prepare a good agreement spending time now; and remember to include these points the next time you are drafting a Non Disclosure Agreement.
VakilSearch is India’s leading online legal services provider for businesses and individuals. As the official partner of the Confederation of Indian Industry (CII) and knowledge contributor to Sulekha.com, the Hindu Business Line, Entrepreneur Magazine and the All India Rubber Association, VakilSearch reaches out to thousands of businesses, entrepreneurs and individuals on a regular basis. So when you visit vakilsearch.com, you can be assured of quality legal guidance and comprehensive documentation for your business and personal needs, at affordable prices.