पाठशाला Pathshala · नियम Niyam, Law and compliance · Lesson 07 · Start

NDAs and when they are worth the paper

A non-disclosure agreement protects information that is already secret and already named. Used for the wrong meeting it protects nothing and costs you the meeting.

Pathshala, The Founder Library · 11 October 2026 · 8 min read

A white envelope closed with a red wax seal lies beside a pair of eyeglasses on a textured surface. — Photograph: Melike B · Pexels

A founder sends a two-page NDA to six venture firms before the first meeting. Four do not reply. One sends back its own standard paragraph saying it does not sign NDAs. The sixth signs, and in the meeting the partner asks why the deck, which is on the company’s website, needed one. The document protected nothing and cost five conversations.

This lesson sets out what a non-disclosure agreement actually does under Indian law, the four situations where it earns its place, the eight clauses a reasonable one contains, and why investors decline to sign yours. The decision tree in the middle turns the argument into a question you can answer before any meeting.

What an NDA can and cannot do in India

An NDA is an ordinary contract. Its terms bind because the Indian Contract Act 1872 enforces promises made for consideration, and the mutual exchange of information is consideration enough. What makes it useful is not the money a court might award afterwards but the order it can make before the damage is done. Section 38 of the Specific Relief Act 1963 allows a perpetual injunction to prevent the breach of an obligation in the plaintiff’s favour, section 37 leaves temporary injunctions to the Code of Civil Procedure, and section 42 lets a court enforce a negative promise, a promise not to do something, even where it will not order the positive one. A promise not to disclose is exactly that kind of negative promise.

Damages are weaker. Section 73 of the Contract Act compensates loss that arose naturally from the breach or that the parties knew was likely, and excludes remote and indirect loss. Proving that a leaked pricing model cost the company a specific sum is hard. Section 74 lets a contract name a sum payable on breach, but the court awards only reasonable compensation up to that figure, so a clause promising ₹1 crore for any disclosure is a ceiling and not a cheque.

The limits follow from this. A court will restrain the use of information that was confidential, identified and disclosed under the promise. It will not restrain the use of an idea that was never secret, information the recipient already had, or knowledge an engineer carries in their head as general skill. And section 27 of the Contract Act voids any agreement that restrains someone from carrying on a lawful trade, so an NDA that tries to stop the other side from ever building a competing product will fail at exactly the clause the founder cared about.

There is one statutory backstop worth knowing. Section 72A of the Information Technology Act 2000 makes disclosure of personal information in breach of a lawful contract punishable with imprisonment of up to three years, a fine of up to ₹5 lakh, or both. It covers personal information, not trade secrets, and a founder should not plan around a criminal complaint. But it is why a vendor’s lawyer takes the data clauses more seriously than the rest.

When an NDA earns its place

A vendor, agency or freelancer working inside your systems. They will see code, credentials, customer records and the roadmap. This is the strongest case for a one-way NDA, and it is usually better folded into the services agreement so that confidentiality, IP assignment and data terms sit in one signed document. Where personal data moves, the NDA is not enough: under section 8 of the Digital Personal Data Protection Act 2023 the company remains responsible for processing done on its behalf, and processors must erase what they were given when the purpose ends. Add a data-processing schedule.

A pilot with a customer or partner. Both sides disclose: they show you their workflow and data, you show them the product and the plan. A short mutual NDA, signed before the first working session, is normal and quick. A company exploring an acquisition or a strategic stake. The other side is often a competitor. This is the one NDA worth paying a lawyer to draft, with a non-solicitation promise for the people they meet and a clean-team arrangement that limits who on their side sees pricing and customer lists. A specific technical disclosure to a manufacturer, a chip supplier or a research partner, where you can name the thing being disclosed.

What these cases share is that the information is secret, valuable and can be described in a sentence. If you cannot write down what you are protecting, the NDA will not protect it either.

An NDA does not make information secret. It records that it already was, and names it.

What a reasonable NDA contains

Two to four pages. Anything longer is usually a services agreement in disguise. Eight clauses do the work.

Definition. Information disclosed for the stated purpose, in any form, that is marked confidential or that a reasonable person would treat as confidential. Exclusions. Information that is public, that the recipient already had, that it developed independently or that it received lawfully from someone else. These four exclusions are standard everywhere; a recipient who strikes them is asking for a trap. Purpose. The information may be used only to evaluate or perform the named project. Who may see it. Employees and advisers who need to know and are bound by similar duties, with the recipient answerable for them.

Compelled disclosure. If a court or regulator demands it, the recipient may disclose what is required after telling you first where the law allows. Duration. Two to three years of survival after the relationship ends for ordinary business information; longer, or for as long as it remains secret, for source code and true trade secrets. An NDA with no end date is harder to enforce and harder to get signed. Return or destruction on request, with a certificate, and a carve-out for automatic backups that are not accessed. Remedies, law and forum. An acknowledgement that damages may not be adequate and that injunctive relief can be sought, Indian law, and courts or an arbitral seat in a city you can reach. The [contracts lesson](/library/contracts-ten-clauses-that-decide-disputes) explains why the seat matters.

Leave out what does not belong. A non-compete is void under section 27 and makes the whole document look careless. A huge liquidated damages figure invites the other side’s lawyer to spend a week on it and a court to cut it down under section 74. An IP assignment clause in an NDA is in the wrong document: ownership of what is built belongs in the services or employment agreement, as the [IP assignment lesson](/library/ip-assignment-company-owns-what-you-built) sets out.

Why investors will not sign yours

Early-stage investors see hundreds or thousands of companies a year, many of them working on adjacent problems. A memo for its fund clients by the law firm Morgan Lewis lists the reasons funds traditionally decline: a broad confidentiality promise could stop the firm backing a whole industry; a firm cannot track what it learned from whom across thousands of pitches; a failed company may find that a frivolous breach claim is its most valuable asset; and partners who sit on portfolio boards owe duties that an NDA could collide with. The same memo notes that firms do sign at later stages, where a company holds genuine trade secrets, and in competitive deals where signing wins access.

So the request fails twice. It is refused, and it tells the investor the founder is guarding the wrong thing. The idea is rarely the asset; execution, data, relationships and speed are. What a founder should do instead is disclose in layers. The deck, the market and the metrics go to anyone. The customer list, the code and the pricing model go to a firm that has issued a term sheet, at which point the firm’s own confidentiality undertaking in the term sheet or the diligence process applies. And before sharing anything sensitive with a fund that has a portfolio company in the same space, ask directly, which is a better protection than any paper.

Making the paper count when you do sign one

An NDA that sits in a folder while confidential material flows by email protects little. Three habits make it real. Mark what is confidential when you send it, in the file name and the first page, so that the definition clause has something to bite on. Keep a short disclosure log: date, recipient, document, under which agreement. Share sensitive material through a data room or a link that records access rather than as attachments that live forever in someone’s inbox. When the relationship ends, send the return-or-destroy request in writing and file the reply.

A key sits in the lock of a closed office drawer. — The agreement is the promise. The lock the log and the data room are what keep it. Photograph: Jakub Zerdzicki · Pexels

Ask your lawyer once what stamping your State expects on agreements of this kind and follow it every time, so the paper is in order before it is needed. Sign it as the company, through an authorised signatory, rather than in a founder’s own name. And read the counterparty’s NDA as carefully as you would want yours read: the clauses that bind you as recipient are the ones that will be quoted back to you if your next product looks like theirs.

The ten-minute check before any meeting

Before a meeting where something might be disclosed, walk the tree above and write one line: what exactly we would protect. If the line is empty, go to the meeting without paper. If it names code, data, pricing or a customer list, send a short NDA, mutual where both sides disclose, at least two working days ahead so it is not a hurdle at the door. Where personal data will move, attach the data-processing schedule. Once a quarter, open the disclosure log, close out any relationship that has ended with a return-or-destroy letter, and check that every vendor with system access has a signed agreement on file. Ten minutes a meeting and twenty a quarter is the whole cost of an NDA that would actually hold.

Nothing here is legal or tax advice; confirm the current rule with a chartered accountant or lawyer before acting.