Every person wants his business to grow leaps and bound but it is not necessary that every person has all skills or knowledge of every aspect of business and it may not be possible for an individual to carry out all sort of activities in house on his own. Sometimes, the work needs to be performed by some expert having expertise in particular domain. For example Services of Chartered Accountant, Company Secretary, Lawyer, Website Developer, PR Marketing, Investment Banker, Engineer etc.
Thus, hiring of consultant or professional to seek expert advice becomes need of the hour. However, in the recent time, it is being witnessed that hiring an outside consultant to work on certain project involves certain element of risk, if the said project has been assigned without having an enforceable confidentiality agreement.
In absence of confidentiality agreement outside consultant may use the information and documents shared by the client during the project for their own purpose or with third party without prior permission of actual owner of those information and documents.
It is very important to protect such information from being leaked out into the market/ rivals. Hence, businessman needs to enter into a NDA Agreement with the consultant/professional to safeguard all such business information shared with them during the validity of Non-Disclosure Agreement (NDA).
It is being noticed that under the confidentiality agreement client wants to secure the information and documents shared with the consultant. However, prima facie, it is known to the client that there would be certain event when the consultant would require to disclose those information and/ or documents. For example Information required to be disclosed in any legal matter wherein judicial authority may ask for disclosure for those confidential information, however, in such a scenario, it is important for the consultant to disclose the information only on Need to Know basis and no extra information to be disclosed.
So while drafting confidential agreement it is important to make sure that it must be drafted in such way that it can be legally enforceable under the court of law and even if the consultant would feel that disclosure of such information become mandatory, then the same must be disclosed on need to know basis.
Suggested Confidentilaity Clauses
1. Define Confidential Information: This will cover those information, documents, paper etc. which would be considered as a Confidential Information under the Confidential Disclosure Agreement. It needs to be detailed and exhaustive one considering the nature of business and consultant with whom client is intending to enter into an Agreement.
“Confidential Information in relation to both parties means and includes any non-public information whether or not designated as being confidential or which under the circumstances surrounding disclosure ought to be treated as confidential. “Confidential Information” for purposes of confidentiality includes, but is not limited to, the following types of information and other information of a similar nature (whether or not reduced to writing) marketing techniques and materials, marketing and development plans, customer names and other information related to customers, information about the employees (including, addresses, phone numbers, e-mail addresses, and all other information relating to the employees), price list, brokerage/ commission structure, pricing policies and financial information, discoveries, ideas, concepts, software in various stages of development, drawings, specifications, techniques, models, data, mark-up languages, documentation, diagrams, flowcharts, research, development, formulas, computer programs, processes (both business and technical), technical specifications, data, ideas, inventions, algorithms, source code, object code, know-how, software listings, schematics and discussions between the Disclosing Party and the Receiving Party.”
2. Usage of Confidential Information: It is very important to set out the cases wherein the consultant would be permitted to use the Confidential Information’s and it is also needs to be mentioned that other than the consultant who will be authorised to use the information and what will be the manner of usage of such Confidentiality Information.
3. Exception for Non-Disclosure: Sometime situation occurs that it become very essential for the Consultant to disclose the information, in order to face such situation, it is always suggested that there must be some exemption from Non sharing of information’s like Information :
a. is, at the time of disclosure, publicly known and made generally available in the public domain;
b. becomes, at a date later than the time of disclosure, known to the trade or the public otherwise than a wrongful act or negligence or breach of this Agreement of or by the Consultant;
c. is known or possessed by Consultant free from any obligation of confidentiality, as evidenced by Consultant written records immediately before receipt of the Confidential Information from client;
However, it is pertinent to note down that even in above cases, information and document needs to be shared on “Need to Know” basis and prior intimation, if possible, needs to be given to the client by the consultant.
4. Validity of the Agreement: The validity period for which the agreement shall stand in effect needs to be defined specifically. This clause helps to determine the liability of the concerned in case there is breach of any of the clause of the Agreement.
5. Ownership of Confidential Information: The client (Disclosing Party) shall be the sole owner of the documents prepared/ acquired/ shared during the tenure of the Agreement.
Clause for Instance: “Notwithstanding anything contrary contained in this Agreement, all Confidential Information will remain the exclusive property of the Disclosing Party. The Disclosing Party’s disclosure of Confidential Information will not constitute an express or implied grant to the Receiving Party of any rights to or under the Disclosing Party’s patents, trademarks or other intellectual property rights. Except to the extent permitted by applicable law in the absence of any express license or other grant of rights, neither party will use any trade name, trademark, logo or any other proprietary rights of the other party (or any of its Affiliates) in any manner without prior written authorization of such use by an authorized representative of such other party.”
6. Handover of Confidential Information: It is the responsibility of the Consultant to handover all the confidential information which he has received while working during the agreement to the Client once the agreement is terminated and work is over. Sometime, client may also urge for getting an undertaking from the consultant that all the information’s has been returned and cancelled and destroyed and shall not be used in any manner.
7. Residual Clause: A Residual Clause is most of the time mentioned in the non-disclosure agreement which specify that if during the period of the Agreement if one party learn something from other party which comes under intangible form of information, then such person is free to use those information’s in a manner he/ she wants.
There has been an argument in relation to residuals clause as it is very difficult to ascertain and keep it separate from confidential information. Even after drafting a residual clause carefully in favour of disclosing party in the Agreement, it is very difficult to mitigate the risk associated with it.
However, it would be suggestible to have below consideration while dealing with this clause:
Make sure that such clause specifically exclude any license under the discloser’s patents and copyrights;
Such information shall apply only to recipient Unaided Memory without any reference to written or electronic information;
Restrict the recipient employees or contractor from working on competing business project for certain time period.
So it is advisable to avoid residual clause at first instance if you are acting as Disclosing Party and where very sensitive information would be shared and if contrary to this, then then do consider the above safety measures.
8. Indemnity Clause: The term Indemnity is defined under Section 124 of the Indian Contract Act, 1872 wherein it is stated that “A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.
Under the Confidentiality Agreement with the Consultant, Indemnity clause helps to protect the Disclosing Party from the wrong doing of other Recipient Party under the Agreement. In case of breach of duty on the part of each Party, the Party committing the default shall indemnify the other party and make good the loss suffered.
9. Notice: The address of each party shall be stated wherein all the written communication including notices are to be served.
10. Severability Clause: This clause is regarding severability of any clause of the agreement, which becomes invalid, for the time being in force, is to be severed from the agreement in such a way that only that clause becomes inoperative without affecting the entire agreement.
11. Bribery Clause: The Client shall not promote/ pursue any work by payment of bribe. Further Consultant shall not do any act of bribe in order to take assignment from Client.
12. Representation and Warranties: The parties represent and warrant that they have been duly authorised to sign and submit the necessary agreement and documents on behalf of the Parties.
13. Termination: Terms on which the agreement stands to be terminated shall be mentioned specifically in the Agreement. Few Instance for the same are :
- on completion of service
- on expiry of the term
- continuous delay in completing the work
- misuse of information and records
- on breach of terms of the Agreement
Notice Period which needs to be given should be mentioned.
14. Arbitration: In case of any dispute, the Parties can mutually agree to settle the dispute through arbitration also and same shall be carried out as per the provision of Arbitration and Conciliation Act, 1996 and amendment therein from time to time.
15. Jurisdiction: The agreement should define the jurisdiction of the Court which can be approached by the Parties to the Agreement in case of any dispute arose.
As we all know that there can’t be “One Size Fits All” kind of Agreement for securing all kind of Confidential Information and above clauses is only illustrative list not exhaustive and the same would also depend upon how a particular clause is being crafted considering the nature of transaction. Majorly above clauses creates a significant impact on the agreement and makes it more qualitative.