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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 ..... 0100193966720 in his name at HDFC Bank, Cuttack-Puri Road Branch, Bhubaneswar. Since opening 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 enrol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emat Account dormant/suspended on the plea of not being linked to Aadhaar is arbitrary, lacks 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06.2023, and not by the Respondent Bank. Due to this suspension by NSDL, the Petitioner'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 PA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Learned counsel for SEBI ("Opp. Party No. 4") earnestly made the following submissions in 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 exceptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Account on 03.06.2024. NSDL issued its Circular No. NSDL/POLICY/2023/0038 dated 21.03.2023 in 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ism, extends beyond the individual to encompass a connection with the greater cosmic order. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at extent information about them is communicated to others," [Alan Westin, Privacy and Freedom (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights were divided into rights of personal security, personal liberty and property. The right 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the right to life and personal liberty under Article 21, privacy is not an absolute right. 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 betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly mentioned in Puttaswamy (supra). 27. The Supreme Court delved into the intricate and often 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sort of person that the user is and her interests. Individually, these information silos may 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 disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommend to the Union Government the need to examine and put into place a robust regime for data 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 techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - enabled by the 'world wide web'. [Michael L. Rustad, SannaKulevska, 'Reconceptualizing the 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 repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, cannot be countenanced. As already mentioned above, purpose for enrollment 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 Muni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l practice. That apart, even if solitary purpose of de-duplication of PAN cards is taken into 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanisms are available at the level of assessing officers. The Department needs to holistically 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally dealt with by the Division Bench in Binoy Viswam inasmuch as these aspects were eluded 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without detection. As a result, tax authorities often faced significant hurdles in tracing taxable 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon citizen. 38. However, as more people invest their hard-earned money in these financial 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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