In a significant legal pronouncement, the Orissa High Court has upheld the constitutional validity of the mandatory linkage between Aadhaar and Permanent Account Number (PAN) for operating dematerialized (demat) accounts. This decision came in response to a petition filed by former Member of Parliament Tathagata Satapathy, who challenged the necessity of linking Aadhaar to his PAN for the continued operation of his demat account.
Background of the Case
Tathagata Satapathy, a four-time MP representing the Dhenkanal constituency in Odisha, maintained a savings account with HDFC Bank's Cuttack-Puri Road Branch in Bhubaneswar. Acting on the bank's recommendation, he invested ₹25 lakhs from his savings into a demat account with HDFC Securities on December 24, 2019, initiating trading activities on January 6, 2020. Notably, at the time of opening both his savings and demat accounts, Satapathy had not enrolled for Aadhaar, and thus, these accounts were not linked to an Aadhaar number.
In July 2023, Satapathy's trading and demat accounts were rendered dormant due to the absence of Aadhaar linkage. Upon discovering this, he communicated to the bank that he had not enrolled for Aadhaar and referenced the Supreme Court's decision, asserting that Aadhaar was not mandatory for banking services or transactions. He requested the bank to reactivate his accounts without the Aadhaar linkage. When the bank did not comply, he sought the closure of his demat account and the transfer of his assets to his wife's demat account. However, the bank's head office responded, stating that the suspension could not be lifted without linking his PAN to Aadhaar. This impasse led Satapathy to file a writ petition challenging the bank's actions.
Legal Arguments Presented
Satapathy's primary contention was that the mandatory requirement to link Aadhaar with PAN for operating demat accounts infringed upon his fundamental rights, particularly the right to privacy. He argued that such a mandate was not only intrusive but also lacked a valid legal foundation, especially since he had chosen not to enroll for Aadhaar.
The respondents, representing the bank and the regulatory authorities, countered by emphasizing the legislative backing of the requirement. They pointed to Section 139AA of the Income Tax Act, introduced through the Finance Act of 2017, which mandates the quoting of Aadhaar for obtaining a PAN and for filing income tax returns. This provision was enacted with the intent to curb tax evasion and to ensure the uniqueness of PAN allocations, thereby preventing the circulation of duplicate or fraudulent PANs.
Court's Analysis and Judgment
Presiding over the case, Dr. Justice Sanjeeb Kumar Panigrahi delved into the constitutional aspects of the mandatory Aadhaar-PAN linkage. The court referred to the landmark judgment in Justice K.S. Puttaswamy (Retd.) vs. Union of India, where the Supreme Court upheld the validity of the Aadhaar scheme, subject to certain conditions. The Puttaswamy judgment introduced a threefold test to assess the permissibility of any measure that infringes upon the right to privacy: legality, necessity, and proportionality.
Applying this framework, the Orissa High Court concluded that Section 139AA of the Income Tax Act satisfied all three criteria:
Legality: The requirement is backed by a duly enacted law, providing a legitimate basis for the linkage.
Necessity: The linkage serves a pressing state interest by aiming to eliminate fraudulent financial activities and ensuring the integrity of financial transactions.
Proportionality: The measure is deemed appropriate and not excessively intrusive, as it seeks to balance individual privacy rights with the broader public interest of financial transparency and security.
The court further noted that the Supreme Court, in its earlier decisions, had already upheld the constitutional validity of Section 139AA, reinforcing the mandate for Aadhaar-PAN linkage for tax-related purposes. Given that demat accounts are intrinsically linked to financial transactions and potential tax implications, the extension of this requirement to such accounts was found to be reasonable and within the ambit of the law.
Implications of the Judgment
This ruling has far-reaching implications for account holders and financial institutions alike. Individuals operating demat accounts are now unequivocally required to ensure their Aadhaar is linked with their PAN to maintain active status. Financial entities, on their part, are mandated to enforce this linkage to comply with regulatory standards.
The judgment underscores the judiciary's stance on balancing individual rights with collective security and transparency. While acknowledging the concerns related to privacy, the court emphasized the necessity of such measures in combating financial malpractices and enhancing the robustness of the financial system.
Conclusion
The Orissa High Court's decision reaffirms the legislative intent behind the Aadhaar-PAN linkage, highlighting its role in promoting financial integrity and curbing illicit activities. For account holders, this serves as a crucial reminder to comply with linkage requirements to ensure uninterrupted access to financial services. The ruling also sets a precedent for future challenges concerning the interplay between individual privacy rights and regulatory measures designed for public welfare.
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