Soumya Shekhar

Soumya Shekhar

Soumya is an independent legal consultant with over 7 years of experience. An alumnus of National Law University, Delhi and National University of Singapore, she has worked with various Tier-1 Law firms and is an expert in employment law, contract drafting and legal research. She enjoys writing and has been actively contributing articles for LegalKart for more than a year.

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How to Break a Non-Disclosure Agreement?
Agreement & Contract

How to Break a Non-Disclosure Agreement?

A Non-Disclosure Agreement ("NDA") is a legally enforceable agreement that falls under the ambit of the Indian Contract Act, 1872, which serves as the umbrella legislation for all contracts and agreements. This agreement protects and maintains the confidentiality of vital information disclosed between the parties, including trade secrets.

NDAs are also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), secrecy agreement (SA), or non-disparagement agreement.

NDA protects a company's trade secrets or confidential information from being exposed to competitors or unauthorized parties who could use the information to damage the disclosing party irreparably. The disclosing party who shares confidential information with the receiving party agrees on what is considered confidential and not when they sign the agreement.

NDAs maintain the secrecy of information shared between the two parties and overall protect the business's intellectual property. The first step of the negotiations frequently presupposes the disclosure of various types of information. This necessitates that the parties remain bound by the NDA and do not violate it, as it may result in legal consequences.

What happens if you break a non-disclosure agreement?

An NDA violation is a civil wrong. NDAs are legally binding agreements. When the parties sign a NDA, the receiving party must keep the confidential information secret. However, if the receiving party chooses to disclose confidential information to a third party or an unauthorized entity, the party will face legal consequences or penalties.

NDAs not only bind the parties to keep confidential information private, but they also include legal remedies and penalties for any breach of the agreement, such as injunctions, indemnification etc. Breach of NDAs can result in significant monetary penalties, in addition to injuntive remedies.  One should read a NDA very carefully before signing the same.

Why you should not violate a non-disclosure agreement?

NDAs deter persons from disclosing sensitive information to third parties or the general public, and severe penalties accompany them. In many circumstances, the agreement will specify the consequences of breaking the NDA. The following are some instances of penalties for violating an NDA: injunction, indemnity, damages, termination from employment, loss of business reputation, clients, etc.

A NDA would typically contain language that would entitle the Disclosing Party to resort to any legal remedies it deems fit. Such wide language in itself should sound a warning bell to the Receiving Party. It is better to comply with confidentiality obligations than breach a NDA.

Non-Disclosure Penalty Clause

It can be difficult to estimate the damages resulting from a breach of the confidentiality clause, as a result, a penalty clause that provides an appropriate value for the damage resulting from a contractual non-fulfilment may be beneficial. There is an added advantage of this clause if the penalty is already specified in the agreement, then there will be a fear of having to pay heavy damages, which would not exist if the party planned to strictly comply with the contractual obligations.

The penalties for violating the agreement are often laid out in the agreement, including injunction, indemnity, and damages. It is essential to mention that the Specific Relief Act of 1963 and the Code of Civil Procedure, 1908 govern these preventive reliefs.

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Injunction

The non-breaching party may seek an injunction from the court to prevent the Receiving Party from sharing such confidential information. The purpose of applying for an interim or permanent injunction is to prevent the defendant (that is the Receiving Party) from committing any future breaches or causing any other form of harm to the aggrieved party (the Disclosing Party).

Indemnity

The Receiving Party must indemnify the Disclosing Party for any fees, expenses, or damages incurred by the Disclosing Party due to any breach of this Agreement's provisions. Court fees, litigation costs, and actual, reasonable attorney's fees are all included in this obligation.

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Damages

If the Receiving party violates an NDA, the Disclosing Party may file a lawsuit in court to prohibit additional disclosures and sue the violating party for monetary damages.

To conclude, NDAs are low-cost, simple-to-create legally binding agreements that keep private information secret between two or more parties. It is critical to be as specific as possible when drafting an NDA so that all parties understand what can and cannot be disclosed and the penalties for disclosing information. An agreement can be void if the language is overly broad, unreasonable, or onerous. The courts will also challenge or invalidate agreements that are unduly broad, oppressive, or attempt to contain non-confidential information. Also, if the information is made public, the Disclosing Party cannot enforce a NDA.

Always have a lawyer review an NDA before you sign the same. Look out for onerous terms and be very careful before putting your name to it.

Partition Of Property Under Hindu Law
Property

Partition Of Property Under Hindu Law

Partition is the process of division of property. The Hindu Succession Act, 1956 ("Act") regulates the partition of property under Hindu Law. 

There are two types of partitions under the Hindu Succession Act. 

  1. Self-Acquired Property 

  2. Ancestral Property 

Property obtained by someone in their lifetime and not inherited from their ancestors is Self-Acquired Property. On the other hand, Ancestral property is property inherited from one's forefathers. Further, Succession itself is of two types: Testamentary Succession and Intestate Succession. 

  1. Types of Succession

As noted, Succession can either be Testamentary or Intestate. Testamentary Succession occurs if there is a will. As long as the will is valid and enforceable, the will has to be executed, and the inheritance provisions do not apply. Part VI of the Indian Succession Act, 1925, further elaborates on provisions related to wills. The will should be clear, reduced to writing, signed by the testator and two independent witnesses. 

By contract, Intestate Succession is primarily covered by the laws of inheritance. For Hindus, these are governed by the Hindu Succession Act, 1956. 

  1. Rules of Succession under Hindu Law

Succession itself depends on whether the property is a self-acquired property or an intestate property.

  1. Succession of Self-Acquired Property

Self-acquired property is also known as coparcenary property. Individuals only have an "interest" in such property, and they receive a share in the property if they have an interest in it. Thus, the "devolution of interest" is an important concept.

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Section 6 of the Act comprehensively discusses the devolution of interest in cases of the death of a Hindu male. The property will devolve to all coparceners within the dictates of Mitakshara law. However, the Act is progressive and has included women and female heirs within the coparcenary. 

  1. The succession of Ancestral Property

The rules of property division are given under Chapter II of the Hindu Succession Act, 1956.

A Hindu male's basic rules of Succession are codified under Sections 8 and 9 of the Act. Under these provisions, the order of Succession is as follows:

Relatives specified in Class 1 > Relatives specified in Class 2 > Agnates of the deceased > Cognates of the deceased. 

The Succession is exclusive. This means that if there are any Class 1 heirs, they will all receive a share in property and exclude heirs from other categories. If there is no class 1 heir, then all members of Class II will exclusively receive an a of the property, and so on. This is the order of Succession clarified in Section 9 of the Act. 

The list of relatives under Class I & II are mentioned under the Schedule to the Act. Class I heirs primarily include the son, daughter, mother, etc. – Usually, the deceased's closest relatives. Class II heirs are more distant but somewhat related: they include the father, son's daughter's son, son's daughter's daughter, and so on. Sections 10 and 11 state the rules of Succession for Class I and II heirs.

The property of an intestate shall be divided among the heirs in class I of the schedule by the following rules- 

Rule 1: The intestate of window (s) shall take one share each. 

Rule 2: The surviving sons and daughters and the mother shall take one share each

Rule 3: The heir in the branch of each pre-deceased son or daughter shall take one share between them. 

This is also applicable to Class-II heirs.

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Finally, property devolves to cognates and agnates. A cognate is any blood relative from the mother's side, while an agnate is any blood relative from the father's side. While both Class I and II heirs receive equal shares, Section 12 of the Act mentions the hierarchy in Succession among the cognates and agnates. 

For females, similar rules are followed. These can be found under Sections 15 and 16 of the Hindu Succession Act.

Employee Confidentiality and Non-Disclosure Agreement for Employees
Agreement & Contract

Employee Confidentiality and Non-Disclosure Agreement for Employees

Confidentiality is a crucial aspect of any business. It is necessary to protect trade secrets, intellectual property, etc. Thus, businesses put a premium on the secrecy of information- this is especially true of information that can adversely affect business. At the time of employment, companies sign separate agreements about the non-disclosure of information or include a confidentiality clause in their employment contract. Some corporates even maintain a confidentiality agreement policy to standardize practices. 

Employee Confidentiality Agreement

The most common way that companies ensure confidentiality is by signing separate confidentiality agreements with the employee. These agreements are known as as non-disclosure agreement (“NDA”). Typically, NDAs forbid the employee from using the company's confidential information for personal gain or the benefit of any third party. 

NDAs also need to contain several other details:

  • Clearly define what kind of information is ‘confidential and how such information is to be kept confidential. Frequent ways are to mandate a period for the return of such documents or the destruction of such information. 

  • State the time period for which the obligations of the NDA will be active. This typically exceeds the validity of the NDA.

  • Exceptions to the NDA. Particular circumstances may require disclosure of information, such as disclosure to a governmental authority. If these are applicable, they must be clearly stated in the NDA.

  • The penalties for breaching the NDA and the forum in which legal action can be taken for breach of confidentiality. This can include either a court or an arbitrator. It is useful to which Court would have jurisdiction, if applicable.

Non-Disclosure Agreement for Employees in India

In India, NDAs are governed by the Indian Contract Act, 1872. Even though the Indian Contract Act does not explicitly name NDAs, they may generally be regulated by Section 27. Section 27 states that agreements in restraint of trade are void.

However, the judiciary has generally tended to uphold the validity of NDAs. In VFS Global Services Private Limited vs. Suprit Roy, the Bombay High Court held that confidentiality clauses were not generally a restraint of trade under Section 27 of the Indian Contracts Act. However, they would be considered invalid if they remained operational beyond the period of the initial agreement itself. This distinction began from Niranjan Shankar Golikari vs. Century Spinning and Manufacturing Company Limited, where the Supreme Court held that negative covenants that operated during the period of employment were not violative of Section 27. Still, if they were in operation even after the termination of the employment, then they would be void. Thus, the Court in VFS Global Services stated that since the Garden Clause was a negative restriction (maintaining confidentiality) operational after the discharge of the initial agreement, it was violative of Article 27.

Employees Confidentiality Agreement Policy

To ensure that employees are aware of their obligations, companies may consider creating a written policy to ensure that employees know the limits of the information they are allowed to disclose. Creating such a standardized policy is helpful since it mentions all the duties and obligations of every employee and allows for convenient referencing. Usually, the NDA that the company signs with the employee are likely to contain provisions of the Confidentiality Policy. Even though there is no substantial difference concerning contents, companies should  have an operational confidentiality policy.

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Employment Agreement Confidentiality Clause

While many companies sign detailed NDAs with employees, others prefer to include confidentiality clauses within the main employment contract. There is not much significant difference between these, except that the NDA will contain more detailed clauses and provisions. Nevertheless, the choice of which to prefer depends on a case-to-case basis.

There may also be concerns about the enforcement of confidentiality clauses in India. We have already highlighted how negative covenants cannot survive outside the master agreement. However, the cases of Hi-Tech Systems & Services Ltd. v/s. Suprabhat Ray and Ors. and Fairfest Media Ltd. v/s. ITE Group Plc hold otherwise. In these cases, secrecy clauses operated two to three years beyond the original employer agreement and the Court did not invalidate these. Thus, there is doubt over whether confidentiality clauses are valid after the lifetime of the master agreement or not. As a result, it may be a better option to opt for confidentiality agreements over clauses.

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Confidentiality or secret clauses are legal as long as the information they seek to protect can be reasonably considered ‘secret’. While there is no authoritative judgement outlining what is reasonable, High Court judgements are illustrative. In Hi-Tech Systems & Services Ltd. v/s. Suprabhat Ray and Ors., the Calcutta High Court said confidential information could include “the customer list of a trader…information [that] would be potentially damaging if a competitor obtained such information…cost and pricing, projected capital investments, inventory marketing strategies and customer’s lists.” Most confidentiality clauses cover similar information, so there are unlikely to be major legal issues on this front.