Module 4 of 6 — NDA Drafting Masterclass

Term, Survival and Termination

Reading module · approx 13 min

The term provisions of an NDA are where most drafting errors lie hidden — not because they are complicated, but because the distinction between two separate concepts is consistently blurred: the term of the agreement and the duration of the confidentiality obligation. These are not the same thing.

Agreement term versus confidentiality period

Agreement term is the period during which the agreement is operative — the window within which disclosures are made and during which the parties are engaged in the relationship the NDA governs.

Confidentiality period is the duration of the receiving party's confidentiality obligation — how long after disclosure (or after the agreement terminates) the receiving party is required to keep the information confidential.

The two periods run at different times and for different durations. A two-year agreement term combined with a five-year confidentiality period means: the parties may share information for two years, and the receiving party must keep that information confidential for five years from the date of disclosure (or from the date of termination — which formulation applies depends on how the survival clause is drafted).

An NDA that says only "this Agreement shall be for a period of two years" without a separate survival clause leaves the confidentiality obligation unanchored. On the most natural reading, the obligation ends when the agreement ends. That is rarely what the disclosing party intends.

Three survival approaches

Fixed period from execution date

The simplest approach: confidentiality obligations survive for X years from the date of the agreement, regardless of when specific information was disclosed or when the agreement terminates. Clean and easy to administer. The problem is that information disclosed on the last day of the agreement term gets much shorter protection than information disclosed on the first day. For a two-year agreement with a three-year survival period, information disclosed in year two is protected for only one additional year after termination.

Fixed period from each disclosure

Each piece of confidential information is protected for X years from the date it was disclosed, regardless of when the agreement terminates. Maximum protection for the disclosing party, maximum compliance burden for the receiving party — who must track disclosure dates for each item of information and maintain different expiry dates for different information. Appropriate for structured due diligence processes where disclosure is documented; impractical for ongoing commercial relationships with continuous informal information exchange.

Fixed period from termination, with trade secret carve-out

The most commercially common approach: confidentiality obligations survive for X years after termination of the agreement, with trade secrets protected perpetually (or for as long as they remain trade secrets). This gives predictable protection anchored to a single date, while recognising that genuinely proprietary information — formulations, source code, core processes — deserves longer protection than business plans and financial projections. The trade secret definition should track the Information Technology Act and the Contract Act, not any US or European definition.

Perpetual NDAs and Section 27

Section 27 of the Indian Contract Act, 1872 renders void any agreement in restraint of trade. An NDA that purports to bind a receiving party to perpetual confidentiality obligations raises a Section 27 question: does an indefinite confidentiality obligation restraint on using information about the disclosing party's business constitute a restraint of trade?

Indian courts have not settled this question with the same clarity as their English counterparts. The dominant position, drawn from a reading of Section 27 alongside the specific exceptions for sale of goodwill and partnership dissolution, is that a genuine confidentiality obligation — protecting specific information that the disclosing party has a legitimate interest in keeping confidential — is not a restraint of trade within Section 27. What Section 27 targets is an obligation that prevents a person from practising their trade or profession, not an obligation that prevents them from disclosing specific information.

However, the closer a "confidentiality" obligation comes to preventing the receiving party from using skills and knowledge gained during the relationship in subsequent work — particularly in the employment context — the more vulnerable it becomes to a Section 27 challenge. The line between protecting confidential information and restricting general professional activity is the boundary. Stay on the right side of it by ensuring the obligation is information-specific, not activity-specific.

As a practical matter, courts in India are more willing to uphold a time-limited confidentiality obligation (even a long one) than an unlimited one. If the information is genuinely sensitive and genuinely secret, a five-year or ten-year obligation is defensible. A perpetual obligation for all information exchanged during a business relationship is harder to justify.

Termination effects

When an NDA terminates, three categories of obligations interact:

Obligations that cease immediately on termination: the right to disclose information to permitted recipients for the Purpose; the right to retain information in the receiving party's systems.
Obligations that survive for the confidentiality period: the non-disclosure obligation; the non-use obligation.
Obligations that survive indefinitely: return or destruction of documents; obligations with respect to trade secrets (if the trade secret carve-out applies); provisions relating to legal proceedings.

The survival clause should expressly enumerate which provisions survive, rather than relying on a general "provisions that by their nature survive shall survive" formulation — which creates ambiguity about exactly which provisions are intended to survive.

Return or destruction obligations

Most NDAs require the receiving party, on request or on termination, to return or destroy confidential information. This obligation sounds simple. In practice, it creates three significant problems.

First, the backup problem. Modern IT systems create automatic backups of everything. Requiring destruction of all copies includes destruction of backup copies, which is technically possible but operationally disruptive and rarely actually done. A well-drafted clause acknowledges that copies in routine backup systems are excluded from the destruction obligation, provided the receiving party does not actively access or use them after termination.

Second, the professional retention problem. Legal advisors, auditors, and regulatory compliance teams are required by professional rules and statutory obligations to retain certain documents. A destruction obligation that is absolute and unconditional may conflict with these external obligations. The clause should carve out documents retained pursuant to applicable professional rules or regulatory requirements.

Third, the certification problem. Many NDAs require the receiving party to certify in writing that all confidential information has been returned or destroyed. This certification is frequently ignored — no one actually confirms it, and the failure to certify is rarely actioned. If certification matters to you, the obligation should specify a timeframe, a responsible officer, and a consequence for non-certification.

A recommended formulation: the receiving party shall, within thirty days of a written request or termination (whichever is first), return or certifiably destroy all tangible embodiments of confidential information in its possession or control, except that (a) copies maintained in automated backup systems shall be overwritten in the ordinary course without active restoration, (b) copies retained pursuant to professional obligations or applicable law shall be subject to the surviving confidentiality obligation, and (c) the receiving party's legal counsel may retain one archival copy in their confidential files.

Standstill provisions in M&A NDAs

M&A NDAs frequently include standstill provisions alongside the confidentiality obligations. A standstill prohibits the receiving party (typically the potential acquirer) from taking certain actions in relation to the target company for a specified period after receiving confidential information. Common standstill restrictions include: acquiring shares in the target, soliciting the target's customers or employees, making a hostile public offer for the target, and initiating or participating in proxy contests.

Standstill provisions are separate from confidentiality obligations and raise their own enforceability questions under Indian competition law and securities regulations. For a full treatment of standstills in Indian M&A transactions, that is outside the scope of this course. The drafting point for NDA purposes is: if you are adding standstill provisions to an NDA, they should be in a clearly separate section with their own term, and the expiry of the standstill period should be expressly stated — a standstill that is tied to the NDA term and survives the NDA can create significant restrictions on a potential acquirer who walks away from a deal.

Drafting tip When you receive an NDA for review, check the term and survival provisions as a single unit. Read the agreement term clause, the survival clause, and the return/destroy clause together before reading anything else. These three provisions tell you the actual duration of the obligations. An NDA with a two-year term, no survival clause, and a destruction obligation on termination provides essentially no post-deal protection. An NDA with a five-year term, a three-year survival period running from each disclosure, and no destruction obligation provides substantial long-tail exposure for the receiving party. The delta between what parties think they have agreed and what the text actually provides is largest in these three clauses.

Module 5 covers remedies — the practical question of what happens in Indian courts when an NDA is actually breached.