Aadhaar-PAn link not infringement of fundamental rights: Orissa high court

The Orissa high court has dismissed a plea challenging the requirement of mandatory linking of Aadhaar to Permanent Account Number for operating dematerialized account, saying that the linkage does not amount to unconstitutional infringement of fundamental rights.

The bench of justice Sanjeeb Panigrahi was hearing a plea filed by former Biju Janata Dal MP Tathagata Satapathy challenged the action of his bank in not allowing him to operate the demat account under his savings account on the ground that the account is not linked to Aadhaar.

The court observed that the linkage requirement ensures that demat accounts remain a “legitimate channel for investment rather than a tool for illicit financial activities”.

“By linking Aadhaar, a unique biometric-based identity, with PAN, the authorities can effectively track income, detect discrepancies, and curb tax evasion within the securities market…The linkage requirement, coupled with strict enforcement by regulatory bodies like SEBI and NSDL, ensures that Demat accounts remain a legitimate channel for investment rather than a tool for illicit financial activities,” justice Panigrahi said. The judgment was delivered on February 14 and was uploaded on HC website on Monday.

The court held the linkage to be constitutional and a reasonable restriction on “right to privacy”, which, under the Section 139AA of the Income Tax Act, aligns with the principles of legality, necessity, and proportionality as laid down in Puttaswamy judgment.

“Section 139AA of Income Tax Act satisfies this test as it is backed by a valid legislative mandate, serves a legitimate state interest, and imposes only a proportionate restriction on privacy,” justice Panigrahi said.

Sathpathy had a savings account in HDFC Bank, Bhubaneswar. On the advice of the bank officials, he transferred ₹25 lakhs from his savings account to his demat account in HDFC Securities in December 2019 and started equity transactions from January 2020.

In July 2023, Satpathy’s demat account went dormant as it was not linked to Aadhaar. The former MP, however, reasoned with bank officials that it is not mandatory for banking services or transactions.

When the bank failed to resolve the issue, he requested it to close his demat account and transfer all his shares and funds to his wife’s demat account.

However, the bank said that the suspension of his demat account could not be carried out without first linking PAN-Aadhaar.

The BJD leader then moved the high court, calling the bank’s decision illegal, arbitrary and contrary to the decision of the Supreme Court.

To be sure, as many as three judgments, including a five-judge bench ruling of 2018 that affirmed the Union government’s Aadhaar scheme, have already upheld the validity of Section 139AA of the Income Tax Act that mandates linking of PAN with Aadhaar.

The first two-judge bench ruling was issued in June 2017, which made its approval to the legal provision conditional on the Aadhaar scheme passing the muster of the constitution bench.

Subsequently, in September 2018, the five-judge bench upheld the validity the Income Tax law amendment linking PAN with Aadhaar for filing tax returns and making Aadhaar or Aadhaar enrollment slip compulsory to apply for a PAN card. The judgment in the Puttaswamy case held that the impugned provision satisfies the three-pronged test of legality, need and proportionality in restricting a person’s right to privacy.

In February 2019, the top court yet again reaffirmed its approval after the Centre assailed a Delhi high court order that allowed two persons to file their tax returns without linking their Aadhaar and PAN numbers

While Satpathy’s case was being heard, the bank unfroze the his demat account in June last year following a circular issued by the National Securities Depository Limited. Though the cause of action did not survive anymore, rendering the litigation an academic exercise, the HC did not drop the proceedings reasoning that “an authoritative pronouncement may be warranted to settle legal uncertainties and provide clarity for future cases”.

Addressing the basic premise of Satpathy’s petition on whether mandatory requirement violated constitutional guarantees, especially the right to privacy, the court said the provision was introduced to enhance the integrity of financial transactions and ensure compliance with tax laws.

“Mandatory linking of Aadhaar with PAN and demat accounts under Section 139AA of the Income Tax Act is in compliance with Puttaswamy principles and the triple tests laid down therein, viz., legality, necessity, and proportionality. Further, it meets the legality requirement as it is a statutory provision enacted through the Finance Act, 2017, and reinforced by CBDT, SEBI, and NSDL regulations. The necessity of this measure lies in its objective to curb tax evasion, eliminate fraudulent PANs, and enhance financial transparency, particularly given the historical misuse of Demat accounts for money laundering,” the HC said.

The single judge bench said that even though the Aadhaar-PAN linkage does not guarantee absolute privacy, it does not amount to an unconstitutional infringement of fundamental rights.

“The measure is a reasonable restriction in furtherance of public interest, ensuring that financial transactions remain transparent and that the securities market is not misused for illicit purposes. As long as adequate security measures are in place to protect Aadhaar data, the linkage requirement remains a constitutionally valid and proportionate policy aimed at strengthening the financial ecosystem,” the court said.

The HC however took note of concerns raised by Satpathy regarding infringement of privacy. “As more people invest their hard-earned money in financial markets, he said, concerns about privacy and security also surface. With increased digital transactions and mandatory KYC (Know Your Customer) norms, people rightfully demand transparency and accountability regarding their financial privacy. It is no longer acceptable for regulators, banks, or the government to turn a deaf ear to these concerns. If investment is to be encouraged, the trust of the people must be earned by ensuring stringent data protection laws, secure investment channels, and a commitment to safeguarding investor rights in a rapidly evolving financial landscape,” the court said.