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TMI Blog2025 (3) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... #2360;्व)" directly translates to "self," signifying one's individual identity, essence, or inner being. It embodies not just personal identity but also a profound spiritual dimension, emphasizing self-reliance, autonomy, and the realization of one's true nature."Swadharma" is not a cage that limits "Swa"; it is the force that gives it meaning, anchoring the self in a larger purpose. When "Swa" aligns with duty, it does not diminish; it transcends, transforming the individual into something far greater than the sum of personal wants. Mandatory linkage of Aadhaar with PAN for the operation of his DEMAT account - It is essential to acknowledge that the securities market has historically been misused as a channel for money laundering and tax evasion. Unscrupulous individuals and entities have used layered transactions, shell companies, and offshore accounts to obscure the origins of illicit funds. One of the most common methods has been circular trading, where stocks are bought and sold repeatedly among related parties to artificially inflate prices and create a facade of legitimate gains. This practice allows black money to be converted into white through capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fringement 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 fear among individuals mandated to link their Aadhaar with PAN and Demat accounts is not unfounded. Any vulnerability in the Aadhaar database can lead to misuse of personal and financial information, with grave consequences such as unauthorized access to bank accounts, cloning of identities, and financial fraud. The very system designed to prevent tax evasion and money laundering may inadvertently expose people to new risks if adequate safeguards are not in place. As financial institutions and regulatory bodies increasingly rely on Aadhaar for verification, the risks associated with a compromised database could have far-reaching consequences for the economy and public trust in digital governance. Thus, the need of the hour is to strengthen the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforementioned account, the petitioner has been operating it regularly. (ii). During the course of banking transactions with the Opp. party bank, the branch manager of the said bank persuaded the petitioner to utilize the amount deposited in the savings account to earn more profit by investing it in trading through HDFC Securities, a subsidiary of HDFC Bank Ltd. (iii). Acting on the advice of the HDFC Bank officials, the petitioner invested an amount of Rs. 25 lakhs from his HDFC Bank savings account into trading through HDFC Securities on 24.12.2019 in Demat Account No. 50100193966720 (73229001) linked to his Savings Bank Account No. 50100193966720. Trading transactions under this arrangement commenced on 06.01.2020. (iv). While the petitioner was trading through HDFC Securities, in July 2023, the HDFC Bank made the petitioner's trading account/Demat account dormant on the grounds that it was not linked to Aadhaar. It is pertinent to note that the petitioner's Savings Bank Account and Demat Account were not linked to Aadhaar at the time of opening, as the petitioner had not enrolled under Aadhaar. (v). Upon becoming aware of this development, the petitioner informed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal sanction, and is therefore liable to be quashed. (iii) The petitioner further states and submits that the action of the opposite party bank in demanding the Aadhaar enrollment number to link the petitioner's bank account is a clear violation of Articles 14, 19(1)(g), 21, and 300-A of the Constitution of India. Therefore, this action is liable to be quashed. (iv) The petitioner also submits that the action of the opposite parties in making the trading app Demat account dormant/suspended under the petitioner's Savings Bank Account is contrary to the decision of the Supreme Court in K.S. Puttaswamy v. Union of India [2018] 8 S.C.R. 1. As such, the action is liable to be quashed. (v) The petitioner prays that he be allowed to operate the trading app Demat Account No. 50100193966720 (73229001) under his HDFC Savings Bank Account No. 50100193966720, maintained at the Cuttack-Puri Road Branch. III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTIES : 4. In reply, learned counsel for the HDFC Bank ("Opp. Party 1 & 2") earnestly made the following submissions in support of his contentions: (i) It is submitted that the Writ Petition against a private entity is not maintainable for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s request for the closure of his Demat Account and the transfer of shares to his wife's Demat Account could not be acted upon. The Bank duly informed the Petitioner about this through an email dated 22.11.2023. Additionally, the NSDL circular dated 30.06.2023 prescribes the procedure for the removal of the suspension of Demat Accounts, which mandates linking PAN with Aadhaar. In the absence of such compliance, the Petitioner's Demat Account would continue to remain suspended. (vii) It is submitted that the contention of the Petitioner that the Bank's action in not allowing him to operate the Demat Account is illegal and arbitrary, being contrary to the judgment of the Supreme Court, is incorrect. The Bank, as a depository participant, is governed by SEBI regulations and cannot be faulted for acting in accordance with such regulations. (viii) In view of the authoritative pronouncement in the case of K.S. Puttaswamy (supra), SEBI, as the regulatory authority of the securities market, has issued directions requiring investors to ensure compliance with the linkage of Aadhaar with PAN for smooth and uninterrupted transactions in the securities market by 31.03.2023. PAN serve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his contentions: (i) It is submitted that no cause of action has arisen for the petitioner to file the present writ petition. Furthermore, there exists no valid ground for impleading Opp. Party No.4 as a necessary party in this matter. The petitioner's demat account is currently in "ACTIVE" status, thereby negating any basis for grievance. (ii) Opp. Party No.4 had issued a Master Circular on Know Your Client (KYC) Requirements for the Securities Market (Circular No. SEBI/HO/MIRSD/SECFATF/P/CIR/2023/169, dated 12.10.2023), which consolidates all relevant circulars and directions issued by SEBI up to 30.09.2023 to ensure an effective Anti-Money Laundering framework. The said circular outlines the KYC process applicable to all SEBI-registered intermediaries, mandating them to obtain and verify Proof of Identity (PoI) and Proof of Address (PoA) from clients before establishing an account-based relationship. (iii) It is pertinent to note that the use of Aadhaar for KYC purposes is purely voluntary. However, since April 2007, PAN has been made mandatory (with limited exceptions) as the unique identification number for all securities market participants, irrespective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the press release PR No.05/2023 issued by SEBI, on 08.03.2023 which, in turn, was aligned with the CBDT Circular No. 7 of 2022, dated 30.03.2022, which provided clarification regarding the relaxation of provisions under Rule 114AAA of the Income Tax Rules, 1962. (iii) Pursuant to SEBI's Circular and later produced FAQs, Opp. Party No.6, through its Circular No. NSDL/POLICY/2024/0071 dated 30.05.2024, issued a directive. Based on NSDL's circular, the Depository Participant (DP), HDFC Bank, unfroze the Petitioner's Demat account on 03.06.2024. It is humbly submitted that the Petitioner's demat account is currently in "ACTIVE" status and is not subject to any freeze. This makes this petition purely an academic discourse. IV. COURT'S REASONING AND ANALYSIS: 8. First and foremost, it is important to highlight that the grievance of the petitioner has already been resolved; leaving no subsisting dispute that requires adjudication. In light to this, any further deliberation on the issues raised would be purely academic, serving only to address questions that, with the passage of time, may not have been adequately answered. While courts generally refrai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. In Upanishadic texts, "Swa" is regarded as the ultimate reality, an eternal and unchanging essence that is one with Brahma (ब्रह्मा), the universal consciousness. Jainism, on the other hand, presents the self as an independent, eternal entity responsible for its own liberation through self-discipline and righteousness. These perspectives highlight that in Indian thought, the self is not merely an individual entity but an integral part of a larger metaphysical framework. This deep-rooted understanding of "Swa" shapes indian perspectives on duty, morality, and self-realization, reinforcing the idea that true fulfillment comes not just from outer perspectives but self-awareness. "Swa" does not mean selfish, not self-centered, not self-absorbed, not self-consumed, it is just the self. 14. In the west, from Descartes to modern jurisprudence, philosophical discourses underscore a fundamental tension between individual autonomy and societal regulation. As digital technology and surveillance expand, ongoing legal debates continue to balance the self's right to privacy with public security and governance. 15. The philosophy of the self has evo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m (New York: Atheneum 1967).] influencing contemporary data protection laws. 18. While the concept of "Privacy" does not truly reflect the essence of "Swa", it is important that the former is understood in light of the latter. In modern governance, the recognition of privacy as a fundamental right ensures that individuals retain control over their personal data, bodily integrity, and lifestyle choices. Just as "Swa" denotes the true essence of an individual, privacy safeguards this essence in the legal domain, preventing state and private actors from infringing upon the dignity and autonomy of individuals. By linking privacy to "Swa", one can see that privacy is not just a legal right but a deeply philosophical principle that upholds the core of human existence: the right to be oneself. 19. Privacy is no mere indulgence; it is the shadow in which free thought germinates, the barricade behind which the soul remains its own. Treating privacy as property is problematic for property is an illusion, a temporary indulgence granted and withdrawn at the whim of power. No man may lay claim to the land beneath his feet or the roof over his head, for these are but fleeting possessions, borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of personal security involved a legal and uninterrupted enjoyment of life, limbs, body, health and reputation by an individual. xx xx xx 46. Natural rights are not bestowed by the State. They inhere in human beings because they are human. They exist equally in the individual irrespective of class or strata, gender or orientation. xx xx xx 318. Life and personal liberty are inalienable rights. These are rights which are inseparable from a dignified human existence. The dignity of the individual, equality between human beings and the quest for liberty are the foundational pillars of the Indian Constitution. S.A. Bobde, J. : 415. Therefore, privacy is the necessary condition precedent to the enjoyment of any of the guarantees in Part III. As a result, when it is claimed by rights bearers before constitutional courts, a right to privacy may be situated not only in Article 21, but also simultaneously in any of the other guarantees in Part III. In the current state of things, Articles 19(1), 20(3), 25, 28 and 29 are all rights helped up and made meaningful by the exercise of privacy." 22. Be that as it may, the self ("Swa"), for all its importance, does not exist in isolat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A law which encroaches upon privacy will have to withstand the touchstone of permissible restrictions on fundamental rights. In the context of Article 21 an invasion of privacy must be justified on the basis of a law which stipulates a procedure which is fair, just and reasonable. The law must also be valid with reference to the encroachment on life and personal liberty under Article 21. An invasion of life or personal liberty must meet the threefold requirement of (i) legality, which postulates the existence of law; (ii) need, defined in terms of a legitimate State aim; and (iii) proportionality which ensures a rational nexus between the objects and the means adopted to achieve them.' (Emphasis supplied) 24. The right to privacy, though fundamental, is not absolute. It is a principle deeply rooted in the traditions of ordered liberty, yet, like all rights, it must yield when the exigencies of governance demand reasonable constraint. The law does not recognize an unfettered dominion of the self against every interest of the state, for society itself is an intricate balance between personal autonomy and the common good. The courts, as the sentinels of constitutional equil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paradoxical nature of informational privacy. The Court recognized that personal information is both the exclusive dominion of the individual and at the same time, a crucial element in the functioning of the state, particularly in matters of security, welfare, and governance. However, this duality requires a delicate balance: while the state may require access to data for legitimate purposes such as national security, law enforcement, and public welfare, such power, if left unchecked, can easily transform into an instrument of surveillance and control. The Court cautioned against the dangers of a data-driven state apparatus that, under the guise of efficiency, could erode individual freedoms, reduce citizens to mere data points, and pave the way for an Orwellian surveillance regime. It emphasized that any intrusion into informational privacy must be tested on the principles of necessity, proportionality, and legality; ensuring that personal data is neither indiscriminately collected nor arbitrarily used. The relevant excerpts are produced hereinbelow: "326. Privacy has both positive and negative content. The negative content restrains the State from committing an intrusion upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y seem inconsequential. In aggregation, they disclose the nature of the personality: food habits, language, health, hobbies, sexual preferences, friendships, ways of dress and political affiliation. In aggregation, information provides a picture of the being: of things which matter and those that do not, of things to be disclosed and those best hidden. xx xx xx 304. Data mining processes together with knowledge discovery can be combined to create facts about individuals. Metadata and the internet of things have the ability to redefine human existence in ways which are yet fully to be perceived. This, as Christina Moniodis states in her illuminating article, results in the creation of new knowledge about individuals; something which even she or he did not possess. This poses serious issues for the Court. In an age of rapidly evolving technology it is impossible for a Judge to conceive of all the possible uses of information or its consequences." '... The creation of new knowledge complicates data privacy law as it involves information the individual did not possess and could not disclose, knowingly or otherwise. In addition, as our State becomes an 'information State' through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a protection. The creation of such a regime requires a careful and sensitive balance between individual interests and legitimate concerns of the State. The legitimate aims of the State would include for instance protecting national security, preventing and investigating crime, encouraging innovation and the spread of knowledge, and preventing the dissipation of social welfare benefits. These are matters of policy to be considered by the Union Government while designing a carefully structured regime for the protection of the data. Since the Union Government has informed the Court that it has constituted a Committee chaired by Hon'ble Shri Justice B.N. Srikrishna, former Judge of this Court, for that purpose, the matter shall be dealt with appropriately by the Union Government having due regard to what has been set out in this judgment. S.K. Kaul, J.: 585. The growth and development of technology has created new instruments for the possible invasion of privacy by the State, including through surveillance, profiling and data collection and processing. Surveillance is not new, but technology has permitted surveillance in ways that are unimaginable. Edward Snowden shocked the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to be forgotten to enable transatlantic data flow', (2015) 28 Harv JL & Tech 349.] 590. These digital footprints and extensive data can be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions and hence, is valuable information. This is the age of 'big data'. The advancement in technology has created not just new forms of data, but also new methods of analysing the data and has led to the discovery of new uses for data. The algorithms are more effective and the computational power has magnified exponentially. A large number of people would like to keep such search history private, but it rarely remains private, and is collected, sold and analysed for purposes such as targeted advertising. Of course, 'big data' can also be used to further public interest. There may be cases where collection and processing of big data is legitimate and proportionate, despite being invasive of privacy otherwise. 591. Knowledge about a person gives a power over that person. The personal data collected is capable of effecting representations, influencing decision-making processes and shaping behaviour. It can be used as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under the Aadhaar Act is to avail benefits of various welfare schemes etc. as stipulated in Section 7 of the Aadhaar Act. Purpose behind Income Tax Act, on the other hand, is entirely different which has already been discussed in detail above. For achieving the said purpose, viz., to curb black money, money laundering and tax evasion etc., if the Parliament chooses to make the provision mandatory under the Income Tax Act, the competence of the Parliament cannot be questioned on the ground that it is impermissible only because under Aadhaar Act, the provision is directory in nature. It is the prerogative of the Parliament to make a particular provision directory in one statute and mandatory/compulsory in other. That by itself cannot be a ground to question the competence of the legislature. After all, Aadhaar Act is not a mother Act. Two laws, i.e., Aadhaar Act, on the one hand, and law in the form of Section 139AA of the Income Tax Act, on the other hand, are two different stand alone provisions/laws and validity of one cannot be examined in the light of provisions of other Acts. In Municipal Corporation of Delhi v. Shiv Shanker, if the objects of two statutory provisions are di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration that may be sufficient to meet the second test of Article 14. It has come on record that 11.35 lakh cases of duplicate PAN or fraudulent PAN cards have already been detected and out of this 10.52 lakh cases pertain to individual assessees. Seeding of Aadhaar with PAN has certain benefits which have already been enumerated. Furthermore, even when we address the issue of shell companies, fact remains that companies are after all floated by individuals and these individuals have to produce documents to show their identity. It was sought to be argued that persons found with duplicate/bogus PAN cards are hardly 0.4% and, therefore, there was no need to have such a provision. We cannot go by percentage figures. The absolute number of such cases is 10.52 lakhs, which figure, by no means, can be termed as miniscule, to harm the economy and create adverse effect on the nation. The respondents have argued that Aadhaar will ensure that there is no duplication of identity as biometrics will not allow that and, therefore, it may check the growth of shell companies as well. xxx xxx 119. Whether such a scheme should remain voluntary or it can be made mandatory imposing compul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally harness these mechanisms at macro level to analyse the gaps in the assessee base. Permanent Account Numbers (PANs) issued upto March 2009 and March 2010 were 807.9 lakh and 958 lakh respectively. The returns filled in 2008-09 and 2009-10 were 326.5 lakh and 340.9 lakh respectively. The gap between PANs and the number of returns filed was 617.1 lakh in 2009-10. The Board needs to identify the reasons for the gap and use this information for appropriately enhancing the assessee base. The gap may be due to issuance of duplicate PAN cards and death of some PAN card holders. The Department needs to put in place appropriate controls to weed out the duplicate PANs and also update the position in respect of deceased assessee. It is significant to note that the number of PAN card holders has increased by 117.7 per cent between 2005-06 to 2009-10 whereas the number of returns filed in the same period has increased by 14.4 per cent only. (emphasis supplied) ...... 121. The respondents have also claimed that linking of Aadhaar with PAN is consistent with India's international obligations and goals. In this behalf, it is pointed out that India has signed the Inter-Governmental Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, consider, examined and the Court recorded its findings on these aspects. We find force in this submission of Mr. Mehta. Insofar as requirement of 'legitimate State interest' is concerned, he pointed out that though Nariman, J. provided for a lenient test, namely, 'larger public interest' as against 'legitimate State interest', the provision satisfies both the tests. We agree with his submission, as Section 139AA of the Income Tax Act, 1961 seeks to safeguard the following interest: 'To prevent income tax evasion by requiring, through an amendment to the Income Tax Act, that the Aadhaar number be linked with the PAN.' 419. The mandatory requirement of quoting/producing PAN number is given in Rule 114 and the Form 49A. While mandating that 'every person', (the term 'person' as defined under Section 2(31) of the Act), shall apply for and get a PAN, the legislature also provided for the requirement so as to how such number will be given to every 'person' in Rule 114 of the Income Tax Rules, the relevant part of which is Rule 114(1). While complying with the mandatory requirement (which have been in existence since 1989) and that for all 'persons', many facts were required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable income and enforcing financial transparency. 33. Recognizing these loopholes, the government introduced the mandatory linkage of PAN with Aadhaar under Section 139AA of the Income Tax Act. This measure aims to eliminate duplicate and fraudulent PANs, ensuring that every financial transaction is traceable to a verifiable individual. 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. This move enhances accountability, strengthens anti-money laundering efforts, and reinforces the credibility of India's financial system. 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. 34. The mandatory linking of Aadhaar with PAN and Demat accounts under Section 139AA of the Income Tax Act aligns with the constitutional principles laid down in Puttaswamy and its triple test: legality, necessity, and proportionality. Section 139AA satisfies this test as it is backed by a valid legislative mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... markets and instruments, concerns about privacy and security have also surfaced. Investors are now questioning how their financial data is handled, who has access to their transaction details, and what measures are in place to protect them from potential breaches or misuse. 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. 39. While the Aadhaar framework was introduced as a robust and unique identification system to streamline financial transactions and curb fraud, concerns regarding its security persist. Reports of Aadhaar data leaks and unauthorized access have surfaced repeatedly, raising serious questions about the safety of sensitive personal information. Incidents where Aadhaar details, including biometric data, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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