Material or Confidential Information: The Difference

Confidential information is anything a party has agreed to keep secret, and that obligation comes from a contract. Material information is anything that would change what somebody is willing to pay for a listed company's shares, and that obligation comes from securities law. Most transaction information is confidential, some of it is also material, and the two are owed to different people and enforced by different parties.

What makes information confidential?

Start somewhere ordinary. A household is planning a wedding and asks three caterers to quote. To quote sensibly each caterer needs to know the budget, so the household tells them, and asks each one not to repeat the figure to anybody in the lane. Two of the three will lose the work. The figure is still theirs to keep quiet about, and the reason it is quiet has nothing to do with the figure itself. The figure is quiet because somebody asked and somebody agreed.

The promise is the whole of it. Information is confidential because a party agreed to keep it secret. The obligation is manufactured by people rather than found in the information. Nothing about a catering budget is inherently secret. The same number written on a poster outside the house would be public and nobody would have broken anything. The change is not in the number but in the promise wrapped around it.

Now put a transaction under the same lens. At the first milestone of this deal, approach and confidentiality, Harivansh Packaging Limited and Sundarban Polymers Private Limited each signed a confidentiality undertakingThe document two sides sign before exchanging information, in which each promises to keep what it receives secret and to use it only for the purpose stated. Often called a non-disclosure agreement.. The two businesses were strangers to each other in every legal sense, so before that signature there was no obligation between them at all. After it, a defined body of material was fenced. The fence is what the word confidential informationThe information a signed undertaking places out of bounds. Its edges are set by the words of that document and not by any general rule about secrecy. means here: not anything anybody would rather keep quiet, but the specific material the document reaches.

Two things follow from that, and both of them surprise people.

The first is that the boundary is written, not discovered. A confidentiality undertaking says what it covers. One undertaking covers everything disclosed in any form. Another covers only what is marked confidential when it is handed over. A third carves out what the receiving side already knew, or what it later works out on its own, or what becomes public through nobody's fault. A fourth runs for a stated period after the transaction ends, and a fifth runs without a stated end. Every one of those is a drafting choice, and drafting choices are made by two sets of advisers arguing about them. The boundary of confidentiality is a drafting question. Two transactions can draw the line in different places without either of them being wrong.

A written boundary is uncomfortable for anyone used to thinking of rules as things that exist independently of the people following them. Here there is no independent thing. The honest answer to what is confidential on this transaction is: fetch the undertaking and read it. A different transaction between different parties signed a different set of words, so the same question may have a different answer there.

The second thing that follows is about who the obligation is aimed at. A confidentiality undertaking is a promise made to the disclosing partyThe side that hands information over. The undertaking is a promise made to that side, so it is that side whose interest the promise protects.. When Sundarban Polymers opens its books, its customer lists and its plant records to the buyer's team, it is Sundarban Polymers who is being protected. The buyer's promise is a promise to the seller. If the buyer leaks, it is the seller who has lost something and the seller who complains.

Everything in the comparison turns on that point. Confidentiality runs between two named parties. There are exactly two of them here, they know each other's names, they have each other's signatures, and the protection flows in the direction the document says it flows. Confidentiality is a private arrangement about private material, and outside those two parties it reaches nobody.

What makes information material?

Different question entirely, and it is worth resisting the instinct to answer it in the same shape.

Back to the lane. Suppose one of those three caterers is not privately held but is a business whose shares change hands, and suppose the rent on its kitchen is about to triple because the building has been sold. Somebody thinking of buying a stake in that caterer would obviously want to know. The rent is not a secret in any moral sense. The rent changes the answer to the question a buyer of the shares is actually asking. The buyer is asking about the value of the business. If the seller of the stake knows it and the buyer does not, and the stake changes hands at yesterday's price, something has gone wrong that no promise between the seller and the landlord would fix.

So material informationInformation whose effect is to change what a person would be willing to pay. Materiality is about the effect a fact has, not about whether anyone has promised to keep it quiet. is defined by what it does. Material information changes what somebody is willing to pay. The people materiality protects are not in the room to agree anything, so materiality is not something the parties can agree between themselves. Harivansh Packaging Limited and Sundarban Polymers can sign whatever they like about secrecy, and it will not make a price sensitive fact stop being price sensitive. The two of them have no standing to decide that on behalf of everybody who might buy Harivansh Packaging shares next Tuesday.

The difference is one of kind, and the sorting later depends on it. The first obligation was manufactured by an agreement. The beneficiaries of the second one never sat at the table, so the second obligation is not available to be manufactured.

Notice which company is in the frame here. Harivansh Packaging Limited is listed on both Indian exchanges. Its promoter and promoter group hold 58.0 per cent, so the free floatThe portion of a listed company's shares that is not held by the promoter and promoter group, and which is therefore available to change hands in the market. is 42.0 per cent. An assumed share price of Rs 300/- against 18.00 crore shares puts the market capitalisation at Rs 5,400 crore. The Rs 300/- is an assumption rather than a quotation, and a live market price would move the Rs 5,400 crore in proportion. Somewhere behind that 42.0 per cent are people deciding today whether to buy or to sell. The people behind that 42.0 per cent are the protected class. None of them is a party to the confidentiality undertaking, none has ever heard of Sundarban Polymers Private Limited, and nothing that Devyani Kulkarni signs as chief financial officer changes their position one way or the other.

Sundarban Polymers, on the other side, is unlisted. Nobody is dealing in its shares in a market. So a fact about Sundarban Polymers alone is not price sensitive to anybody. A purchase makes that fact a fact about Harivansh Packaging as well, and only then does it become price sensitive.

One precision now. Without it the sorting later goes wrong. The restriction that securities law imposes does not attach to material information in general. The restriction attaches to material information that has not yet been published. People search for the same idea as unpublished price sensitive information. Once a fact is out in the open the premise of the restriction is gone: everybody has it, nobody is at an information disadvantage, and there is nothing left to restrain. So restricted means material and still unpublished. The standard for materiality, and what may and may not be done with information that meets it, are set by the Securities and Exchange Board of India (SEBI) and published at sebi.gov.in.

Do the two categories overlap, or does one sit inside the other?

Almost everybody who meets these two ideas together draws them as a ladder. Confidential at the bottom, material at the top, material being the serious end of confidential. The ladder is a natural picture and it is wrong, and getting it wrong is expensive enough to be worth real care.

Draw them instead as two circles that overlap. The two categories answer questions that have nothing to do with each other. Neither sits inside the other, and all four combinations occur on a live transaction.

Take the regions one at a time. Plenty of confidential information is not material at all. Sundarban Polymers hands over its customer level pricing during confirmatory diligence, and it does so behind a restriction. The two businesses sell to some of the same customers, and that pricing in the wrong hands is commercially damaging. Plainly confidential. Does it change what anybody would pay for a Harivansh Packaging share today? No. A price list belonging to a company the listed buyer has not yet bought does not move the value of the listed buyer. The circle on the left is full of material like this, and most of the paper in most deal rooms lives there.

Some material information is not confidential, having been published already, and publication is precisely what takes it out of the restricted category. Sundarban Polymers' annual figures, once filed and available, are just facts. Anybody can have them. Nothing is fenced and nothing is restrained.

And there is a region people forget entirely: information that is restricted on the securities side while no undertaking covers it at all. Think of the board paper inside Harivansh Packaging that sets the maximum price the company is prepared to pay. Nobody outside has ever seen that document, so nobody outside has signed anything about it. The board paper never crossed to the other side. The paper is still, obviously, information that would change what somebody would pay for the shares. The securities side needs no signature from anyone to be running, and that is the sharpest evidence that the two circles are genuinely independent.

Then the middle. Most of a live transaction sits there. The fact of the negotiation itself is both. The negotiation is fenced by the undertaking the two sides signed at the approach, and it would change what somebody pays for Harivansh Packaging shares. Both circles cover it. Both obligations bite. And a team that has only noticed one of the two circles is running half a control over the most sensitive fact on the whole transaction.

When does each obligation start, and what ends it?

Timing is the second place the ladder picture does damage, and it is worth drawing separately because the two obligations do not even switch on at the same moment.

The contractual one has a birthday. The obligation begins when the undertaking is signed, at the approach and confidentiality milestone, and not a day earlier. Everything the buyer's team knew about the packaging films business before that signature it knew freely, and no promise attached to it. An undertaking is therefore signed before anything is handed over rather than after: the fence has to exist before the material walks through the gate.

The securities side has no birthday of that kind, and this is the observation that catches teams out. The securities restriction attaches to the information itself rather than to an agreement about the information, so it is already running before anybody has signed anything. The moment Ashwin Rege's team inside Harivansh Packaging formed a serious plan to buy a films business, somebody was holding something that would change what a share of Harivansh Packaging is worth, and that fact was unpublished. No counterparty existed yet. No document existed yet. The restriction was running regardless.

Now the other end. Which event lifts each of them?

Confidentiality is lifted by the disclosing side. The seller can waive it, formally or by conduct. The seller can also publish the information itself. The material has then become public through the disclosing side's own act, and most undertakings stop reaching it. Or the undertaking simply runs out, if it has a stated life. Every one of those routes runs through the two parties, and all of them are inside their control.

The securities restriction is lifted by publicationMaking information generally available so that anybody dealing has the same access to it. Publication removes the information advantage that the restriction exists to address., and by nothing else that anyone in the transaction can do. Once the fact is out and generally available, there is no longer an asymmetry to protect anybody from. When a listed company is required to publish a fact about a transaction, and in what form, is set by SEBI at sebi.gov.in. The shape is what matters here: publication is the event, and it is not the same event as a seller saying it does not mind.

Which produces a genuinely awkward interval. There is a stretch of every transaction in which the contractual obligation has not yet started and the securities one already has. On this deal that stretch runs from the moment the plan was serious inside the buyer up to the signature at the approach. In that period the only thing standing between an unpublished, price sensitive plan and the market is the buyer's own internal discipline. There is no document at all to point at.

Who does each obligation actually protect?

The comparison earns its keep at this point. Once the protected person on each side can be named, everything else follows without effort.

Confidentiality protects the party that disclosed. Sundarban Polymers opened its books; Sundarban Polymers is who the promise is made to. If the buyer's team lets the customer pricing loose, the injury lands on Sundarban Polymers, and Sundarban Polymers is the one with something to say about it. In the wedding example it is the household whose budget was repeated in the lane. The protected person is identified, present, and holds the paper.

The securities law obligation protects a group nobody can list. The obligation protects people who might deal in Harivansh Packaging shares without knowing what the transaction team knows. There is no name, no address and no signature. There is a class of people, defined by the fact that they are at an information disadvantage, and the obligation exists on their behalf whether or not any of them ever appears.

The everyday version of that gap is a housing society. A neighbour who shares plans for the flat above and asks that they not be repeated can later lift the request entirely and say the plans may be told to anybody. The permission is theirs to give because the interest is theirs. But if the society is quietly negotiating to sell the whole building, and a committee member buys a cousin's flat in the same building at yesterday's price, no neighbour's permission covers what that member did. The person the advantage was taken from was never in the conversation.

Which produces the single most useful consequence here. A seller can waive confidentiality, and nobody in the transaction can waive the securities obligation. The people it protects are not parties to anything, so they have nobody who can speak for them.

A waiverA protected party choosing not to insist on a right it holds. Only the person the right belongs to can give one, which is why nobody in a transaction can waive an obligation owed to outsiders. is only available to the person whose protection it is. Sundarban Polymers can release Harivansh Packaging from part of the undertaking with a letter, and often does. Information has to be shown to lenders and to the people running the conditions period. The transaction cannot function without those releases. Not one of them touches the other circle. The buyer's own board, its chief financial officer and its advisers can all agree unanimously that they are relaxed about the negotiation becoming known, and the securities law obligationThe restraint that securities law places on people holding material information that has not been published, owed to the investing public rather than to any counterparty. is entirely undisturbed by their unanimity.

The two must therefore be tracked in two places. Confidentiality and the securities obligation are not two settings of one control but two separate controls, and only one of them has an off switch that anybody at the table can reach.

What does a breach cost, and who pays it?

Two breaches, and they are not comparable in any dimension: not in who complains, not in who decides, not in who ends up paying.

Breaking the undertaking breaks a contract. The party that disclosed is the one with the grievance. The consequence is whatever that document provides for, negotiated in advance between two sets of advisers who both expected to be on either side of it. A broken undertaking is a matter between two companies. The company that breached carries it, in the sense that companies carry contractual liabilities: on the balance sheet, through the profit and loss account, absorbed by the business. And crucially, the disclosing party can decide to do nothing at all. The disclosing party might prefer the relationship, or the transaction, or simply quiet. The grievance belongs to it, so the decision belongs to it too.

Break the securities side and none of that applies. No counterparty was injured in the relevant sense, so the complaint is not made by a counterparty. The matter is for SEBI, and what SEBI does about it is published at sebi.gov.in. The shape of the consequence holds whatever that rule says: a breach on the securities side lands on individuals, not on the company, so the person who bears the cost is not the same person in the two cases.

Sit with that asymmetry for a second. The asymmetry is genuinely uncomfortable. A finance manager who forwards a spreadsheet to the wrong distribution list has probably created a contractual exposure for the company. The exposure is bad, and it is the company's problem. A finance manager who mentions to a relative that something big is coming, and the relative acts on it, has created something that follows the manager personally. The company's balance sheet does not absorb it. No indemnity in the transaction documents reaches it. The individual is the endpoint.

The two obligations therefore cannot be run out of one register with one owner. A control designed around the company's contractual exposure will be built to protect the company, and will be perfectly indifferent to whether the twenty-two people who now hold the transaction know that they are holding something. A control designed around the securities side has to start from the individuals and work outwards. Same information, two entirely different questions about who is at risk.

How is one item of information sorted into the right box?

The whole procedure is short enough to keep in the head. Any piece of information takes two questions, in this order.

First: is there an undertaking covering it? The first is a document question, answered by reading the undertaking rather than by forming a view about how sensitive the material feels. If the words reach it, the answer is yes.

Second: would knowing it change what somebody pays for the listed company's shares, and is it still unpublished? The second is a question about effect, answered by thinking about the person on the other side of a trade rather than the person who handed the paper over.

The two answers are independent of each other, all four combinations occur, and a transaction team that only ever asks the first question is running half a control.

The independence is not obvious, and it is where the intuition fails, so it is the part worth dwelling on. Nothing about signing a document makes a fact price sensitive. Nothing about a fact being price sensitive causes a document to exist. The board paper setting a maximum price sits in the second box with no document anywhere near it. The customer pricing sits in the first box and would not move a share price if it were read out on a platform. Neither answer can be inferred from the other, and any process that tries to is guessing.

There is one more reason to ask them in this order rather than at once. The first question has a definite answer that somebody can look up, and the second one requires a judgement. Teams that mix them tend to let the easy answer stand in for the hard one. The paper in front of them then starts deciding what the market outside is entitled to.

Where do four real items from this transaction land?

Take four items off this deal and work each one out loud. Doing it slowly shows that the reasoning is short every time, and the answers still come out different.

Item one, the fact that Harivansh Packaging Limited is in negotiations to buy Sundarban Polymers Private Limited, sits in both boxes. Confidential, on the strength of the undertaking both sides signed at the approach, and the existence of the discussion is exactly the sort of thing those documents cover first. Material too, and the size is the reason. A listed buyer entering a purchase of this size changes what somebody would pay for its shares: the enterprise value is Rs 1,320 crore, being 10.0 times the target's earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 132 crore, and after taking off the target's net debt of Rs 180 crore the equity value actually paid to the sellers is Rs 1,140 crore. Rs 1,140 crore is not a small thing to do to a business whose whole market capitalisation is an assumed Rs 5,400 crore. Both circles cover it.

Item two, Sundarban Polymers' customer level pricing, is confidential and is not material. Confidential is straightforward. The pricing sits behind a restriction inside the data roomThe controlled place where diligence information is made available, with access granted item by item and person by person rather than to everybody at once. precisely because the two businesses sell to some of the same customers, and that overlap is the whole reason this transaction exists. Now the second question. Does a price list belonging to a business that Harivansh Packaging has not yet bought change what a Harivansh Packaging share is worth today? No. The listed company is worth what its own business is worth, and the pricing of a company it may or may not end up acquiring does not move that. Confidential, not material.

Item three, the plan to borrow Rs 1,000 crore of new money against opening borrowings of Rs 740 crore, sits in both boxes. Material first, and the clearest case of the three. Borrowings on the acquirer's own books move from Rs 740 crore to Rs 1,740 crore, more than double, and on the acquirer's own EBITDA of Rs 477 crore that takes standalone net debt from 1.26 times to 3.65 times once the Rs 140 crore of cash has gone into the purchase as well. A shareholder looking at that company is looking at a materially different company afterwards. And confidential until it is announced, for the funding of the purchase and the existence of the purchase are the same secret. Both.

Item four, figures Sundarban Polymers has already filed and published, is neither. Publication ends the first. A confidentiality undertaking that reached information already available to anybody would be reaching nothing. Publication ends the second too. The restriction attaches to what has not been published, and these figures have been. One event, both circles, nothing left restrained.

Now the point the sort exists for, and it is not a tidy filing point.

Look at items two and three. A team that runs the whole information problem through the confidentiality undertaking treats them identically. On the only test that team applies they are identical: both are covered, both are secret, both go in the deal room with a restriction on them. And they are not the same at all. Item two needs restricted access, a control over where a file can be opened. Item three needs the people holding it to be on a list and to understand what they may not do with it, a control over people rather than over files. Different control, different protected person, different consequence if it goes wrong.

Why can one obligation not do both jobs?

Because a signature from the other side answers a question that was not the one being asked.

Think about what a team actually feels when the undertaking comes back signed. Relief, and a sense that the information problem has been dealt with. The relief is not irrational. Something real did happen: the counterparty is now bound, the material can move, diligence can start. The trouble is that the relief attaches to a much bigger area than the document covers.

Watch the logic slide. The undertaking is signed, so the information is covered. The information is covered, so the information is safe. The information is safe, so it can be circulated to whoever needs it internally. Each step feels like the last one, and by the third step the team has moved from a true statement about the counterparty to a false statement about themselves.

A signature from the other side protects the seller's secrets and does nothing at all about what the people who now hold the information may do with it.

In the plainest form available: the undertaking travels outwards. The undertaking reaches the counterparty and the people the counterparty passes the information to, for the counterparty signed and the signature binds it. In the other direction sit the buyer's own deal room, its finance team modelling the funding, its board pack, the person who formatted the presentation at eleven at night. The undertaking reaches none of them, for none of them signed anything and there was never any reason for them to. All of them are on the buyer's side. And every one of them is now holding unpublished information about a listed company.

None of that is a defect in the undertaking. The document is doing its job perfectly. The job is simply a different one from what the team has quietly assumed. The document was drafted to stop the other side from misusing what it was given. The document was never drafted to tell colleagues on the buyer's own side that they are now inside something.

And notice which direction the risk runs in the two cases. The undertaking protects the company from a counterparty. The thing nobody built protects individuals from themselves. Of the two, the one that was skipped is the one whose failure lands on a person.

How does a transaction team run both of these at once?

Everything above is worth very little unless it turns into two things somebody actually maintains. In practice a team running a live transaction on a listed acquirer keeps two records, not one, and the discipline is in refusing to merge them however similar they look.

The first record is about material. The record maps what has been disclosed, to whom, under what undertaking and under which restriction. The map is kept because the disclosing side needs to be able to see that its material went where it agreed it could go, and because at completion somebody has to be able to say what was shown. Its natural home is the deal room, where access is granted item by item and person by person. Ashwin Rege's team can answer any question about it by reading a document and a log.

The second record is about people. The second record lists who inside the acquirer is holding the transaction, when they came onto it, and what they were told at the moment they did. Nobody's counterparty asked for it. No document in the transaction requires it. The list exists because the individuals on it are carrying something personally, and because if a question is ever asked about who held what and when, the company needs to be able to answer rather than reconstruct. The contents of the list, and what those individuals must be told, are set by SEBI at sebi.gov.in. The shape is the durable part: it is a record of people, kept by name and by date, and it grows every time somebody new is brought inside.

Watch how the two records behave differently as a transaction moves. The first one grows when material moves between the two sides, so it grows fastest during confirmatory diligence and then goes quiet. The second grows every time anybody new is brought in, and that happens at completely different moments: when the funding is modelled, when the board pack is prepared, when the conditions period brings in the people who will chase the consents. The two records have different growth curves because they are counting different things, and a team that keeps one of them is blind to the moments the other one would have caught.

There is a smaller practical habit worth adopting too. When somebody is brought onto the transaction, the useful sentence is not that this is confidential. Everybody knows that and it teaches nothing. The useful sentence names both obligations separately: the matter is covered by an undertaking with the other side, and separately the person is now holding unpublished information about a listed company, and here is where to find out what that means. Two sentences, one for each obligation.

What do the two obligations have in common?

A comparison that only separates has done half a job, and there is real common ground here that matters.

Both obligations run on the same information at the same time. There is no moment at which a fact belongs to one and not the other by nature; it belongs to whichever circles happen to cover it, and often both. Both begin before most people on a transaction realise anything has begun. Both end, and the same event, publication, is capable of ending both. Announcement day therefore feels like a release to everybody who has been carrying a transaction quietly for months.

And they share a more important property. Neither is a measure of how serious the other one is. Confidentiality is not the lesser obligation, the paperwork one, the one that can be treated lightly. Nor is it smaller. A leak of a target's customer pricing to a business that competes for the same customers can do commercial damage that no restriction ever undoes, and it can end a transaction. The two are different obligations rather than two sizes of one, and taking either one less seriously because it is not the other is the same mistake running in the opposite direction.