Aadhaar Card Update: India’s Supreme Court Verdict Explained

(Editor’s note: For more information on the Aadhaar (Amendment) Ordinance, 2019, click here)

Last week, the Supreme Court (SC) of India upheld the constitutional validity of Aadhaar.  

It also barred certain provisions of the Aadhaar Act – throwing into disarray several business models that rely on Aadhaar-based biometric authentication.  

Aadhaar is a 12-digit unique identification number (UID) issued by the Unique Identification Authority of India (UIDAI) to every individual resident of India.

In this article, we explain the SC’s recent verdict on Aadhaar and what it means for businesses in India.

Supreme Court Aadhaar card verdict

In its five-bench judgment, the Supreme Court struck down several irrelevant provisions related to Aadhaar card linkage where no benefits, subsidies are involved, especially in the private sector. 

This includes section 57 of the Aadhaar Act that permitted private entities to use the biometric authentication system for identification purposes. 

The provision gave businesses, such as mobile companies, e-wallets, and aggregators of various types – cabs, e-commerce companies the statutory support to sell metadata to the growing data broking industry and to use it for targeted advertising or consumer profiling.

Addressing the concern on data privacy, the latest ruling makes linking of the identification card with private services illegal. This also marks an end to any confusion regarding the services for which Aadhaar is mandated.

As per the SC verdict, linking of the Aadhaar number will not be mandatory for the following services:

• Employee pension;
• Re-verification of mobile number;
• Bank accounts;
• Mutual fund investments;
• Insurance policies;
• Credit cards;
• New or existing post office schemes;
• New or existing NSC accounts;
• New or existing PPF accounts; or
• New or existing Kisan Vikas Patra.

Further, private firms and websites selling air, train, rail and movie tickets cannot ask for biometric and other data from consumers for their services. 

The 12-digit UID number, however, will continue to be mandatory for filing income tax returns and for applying for a personal account number (PAN).

Impact on businesses

The Aadhaar ruling will have a major adverse impact on payment banks and financial technology (fintech) players, including e-wallets, online loan givers, online brokerage houses, and peer to peer lending platforms.

The verdict strikes down section 57 of the Aadhaar Act which allows the use of the Aadhaar number for establishing the identity of an individual for any purpose—whether by the State or any corporate or person.

This means that the companies that use Aadhaar based e-Know Your Customer (KYC) to acquire new customers, will now have to make changes to how they onboard and verify customers.

As per the industry estimates, enrolment via Aadhaar takes about 30 minutes to get a customer on board, whereas it takes about 5-6 days for company officers to go to customers’ addresses and verify their details for a physical KYC.

The apex courts’ decision is likely to saddle companies with longer processing time for new accounts and connections.

Non-Aadhaar based KYC will also shoot up the cost of acquiring new customers for companies.

As such, conducting physical KYC is an expensive affair – with every KYC costing about Rs 100 (US$1.36) per person compared to Rs 15 (US$0.2) per person for Aadhaar linked KYC.

For the telecom and fintech industry, the SC ruling is a major setback as these industries thrive on the instant paperless mantra, that is, Aadhaar based e-KYC.

The current number of Aadhaar-linked subscribers in India is estimated at about 500 million — mostly in urban areas — or about half of India’s total mobile users. Moreover, over 80 percent of new users are enrolled using the Aadhaar e-verification process. 

Ways to delink Aadhaar with services

At present, there are no clear-cut guidelines available for delinking Aadhaar with respective services. However, individuals may call up the customer care number of the service provider or email them to place a request for delinking.

Subsequently, the applicants will receive an email from the customer care service asking for a soft copy of the Aadhaar card to be delinked.  

Once the copy is sent to the service provider, the account will be delinked within 72 hours.  

• Previous Article Patent Renewal in India – Fee and Procedure
• Next Article An Introduction to Doing Business in India 2018-19 – New Publication from Dezan Shira & Associates