Non-disclosure Agreements hereinafter referred to as NDAs are contracts that parties sign to protect their confidential information. This confidential information usually consists of trade secrets and formulas that are used by companies to achieve success in their respective industries. Therefore, NDAs are essential to prevent information from leaking to one’s competitors. Most NDA disputes boil down to a breakdown of trust i.e., someone sharing confidential information which they aren’t allowed to share either accidentally or intentionally. In such an event, companies approach court to seek redressal. This article explores how courts handle a breach of a NDA and the consequences that follow.
Statutory Provisions on NDAs
Since NDAs are essentially contracts, Indian courts rely on the Indian Contract Act, 1872 to determine their validity. If a NDA fulfils the requirements under the Act, the same is considered legally enforceable by law. Hence, in the event of a breach, the aggrieved party can recover damages as per Sections 73 and 74 of the Indian Contract Act, 1872. Further recourse is provided under various acts inclusive of the Information Technology Act, 2000 and the Copyright Act, 1957.
Judicial Approaches to NDAs
Indian courts have dealt with several cases of breach of a NDA and have offered valuable insight and principles behind such agreements.
Courts often utilize an order of injunction which is a court order that prevents a party from performing a specific act which could be detrimental to the aggrieved party. Since the leak of confidential information can have adverse effects, courts often invoke this order. This is seen in cases such as Homag India Private Limited v. Mr. Ulfath Hussain and Others (2016). This was a Karnataka High Court judgment whether the defendant was an employee who had the access to the plaintiff companies’ confidential information. The plaintiff had alleged that the defendant had leaked said information to a rival company. Following the review of evidence and the facts of the case, the High Court remarked that the trial court should have granted an order of temporary injunction. This affirms how important an injunction order is to the aggrieved party so that further information is not leaked.
Another landmark judgement which further establishes the enforcement of a NDA was the Bombay High Court case of Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd. (2003). In this case, the plaintiff company had approached the defendant with a creative concept idea for a television program. After presenting it, the plaintiff company did not hear from the defendant and later found that their original concept was being used for a show without their permission. The plaintiff alleged a breach of confidential information and the court ruled that they found the original concept as well as the defendant’s work to be similar in nature and granted an injunction preventing the defendant from airing the stolen idea.
However, a popular question that is debated in the public forum is whether NDAs can be unreasonably restrictive of an individual’s rights? This is particularly noticed in cases where the employee’s rights in a company contract are being dealt with. The courts usually interpret such cases in an attempt of balancing public policy and interests as well as the rights of companies. In the Bombay High Court case of V.F.S. Global Services Pvt. Ltd. v. Mr. Suprit Roy (2008), the court observed that when it comes to employee confidentiality agreements, it is important to ensure that it the same is not unreasonably restrictive of the individual rights of the employee. Another landmark judgement with regards to this is the Supreme Court case of Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (1967). This case concerned post-termination employment restraints. The court in this case sought to limit an over-extensive application of a post termination employment restraint. While restraints during the course of employment were upheld, only a partial restraint and not an absolute restraint is allowed. For instance, restrictive clauses can only abstain an employee from divulging confidential information but cannot prevent the employee from joining a rival company as that would be considered an absolute restraint.
While upholding NDA’s is vital in ensuring that businesses flourish, courts have attempted to recognize the need for a balanced approach which takes into account both employee and company rights. Since NDAs are inherently restrictive in nature, the courts approach reaffirms the principle of a balance of rights.
Author: Ambika Menon, O. P. Jindal Global University
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