The Supreme Court in Justice KS Puttaswamy v Union of India ruled that mobile phones and bank accounts do not need to be linked to Aadhaar numbers. A deeper analysis of the judgment shows that other important assets like mutual funds, Employment Provident Fund (popularly called ‘PF’) accounts and National Pension System (NPS) accounts also do not have to be linked to Aadhar numbers.
The judgment also banned private companies from collecting Aadhaar. This has created some uncertainty with regard to banks, mutual funds and other personal finance companies using Aadhaar numbers for identification and authentication. Several banks offer online accounts based primarily on Aadhaar such as Axis ASAP and Kotak 811, so their fate also hangs in the balance. However the government has clarified that the judgment only requires legislative backing for private party Aadhaar collection which it will provide.
Mutual Funds, EPF, PPF NPS not to be linked
The Supreme Court in its judgment drew a distinction between Aadhaar linking for welfare schemes which are funded from the consolidated fund of India and Aadhaar linking for benefits which are funded by citizens themselves. It clarified that the latter would not fall under the purview of Section 7 of the Aadhaar Act and hence Aadhaar linking is not compulsory for them. The Section 7 of the Aadhaar Act empowers the Central Government to require an individual to have an Aadhaar number for the provision of subsidy, the benefit of service.
Here is what the judgment says:
“Benefits should be such which are in the nature of welfare schemes for which resources are to be drawn from the Consolidated Fund of India. Therefore actions by CBSE, NEET, JEE and UGC requirements for scholarship shall not be covered under Section 7, unless it is demonstrated that the expenditure is incurred from Consolidated Fund of India. Further, the expression ‘benefit’ has to be read ejusdem generis with the preceding word ‘subsidies’.
We also make it clear that a benefit which is earned by an individual (e.g. pension by a government employee) cannot be covered under Section 7 of the Act, as it is the right of the individual to receive such benefit.”
The Supreme Court also declared section 57 of the Aadhaar Act unconstitutional. The Section 57 allowed private parties to collect the Aadhaar numbers of citizens under a contract. Thus, for example, a contract between a mobile provider and a person would stipulate the collection of Aadhaar as part of the contract.
Section 57 of the Aadhar Act says:
“Nothing contained in this Act shall prevent the use of Aadhaar number for establishing the identity of an individual for any purpose, whether by the State or any body corporate or person, pursuant to any law, for the time being in force, or any contract to this effect.”
This is what the judgment says with regard to Section 57 of the Aadhaar Act.
“Insofar as Section 57 in the present form is concerned, it is susceptible to misuse inasmuch as: (a) It can be used for establishing the identity of an individual ‘for any purpose’. We read down this provision to mean that such a purpose has to be backed by law. Further, whenever any such “law” is made, it would be subject to judicial scrutiny.
(b) Such purpose is not limited pursuant to any law alone but can be done pursuant to ‘any contract to this effect’ as well. This is clearly impermissible as a contractual provision is not backed by a law and, therefore, first requirement of proportionality test is not met.
(c) Apart from authorising the State, even ‘any body corporate or person’ is authorised to avail authentication services which can be on the basis of purported agreement between an individual and such body corporate or person. Even if we presume that legislature did not intend so, the impact of the aforesaid features would be to enable commercial exploitation of an individual biometric and demographic information by the private entities. Thus, this part of the provision which enables body corporate and individuals also to seek authentication, that too on the basis of a contract between the individual and such body corporate or person, would impinge upon the right to privacy of such individuals. This part of the section, thus, is declared unconstitutional.”
The quashing of Section 57 of the Aadhar Act thus invalidates the collection of Aadhar numbers by various private entities such as fintech companies. However, the government has clarified that it will enact a law to provide legislative backing to Aadhaar collection if required.