After SC verdict, private firms wanting to still use Aadhaar look to govt

Legal experts claim introducing a law to bypass the SC directive may not be possible given the court's stern stance

Even as the Supreme Court (SC) disallowed the use of Aadhaar authentication services by the private sector, companies in the fintech business have voiced their concern on the order. 

Companies argue that without Aadhaar authentication, their businesses will get disrupted and the government needs to think about a legislation that reinstates their ability to ask for Aadhaar.

In the majority judgement penned by Justice A K Sikri on his own behalf and on behalf of Chief Justice of India (CJI) Dipak Misra and Justice A M Khanwilkar, the SC said that Section 57 of the Aadhaar Act, which allows private companies to use Aadhaar authentication services, is unconstitutional as it fails the test of "proportionality doctrine".  

This implies that lending companies, mobile wallets and other private companies making use of Aadhaar e-KYC to onboard customers can't access authentication facilities anymore.

Experts said that this will be a big blow to the ecosystem as e-KYC cuts down costs as well as the time required to bring new customers onboard.

"Though the verdict is not affecting us, we believe that this will be a regressive move for fintech companies as they will eventually move to the traditional mode of verifying individuals and thereby the turnaround time for processing the loan will increase to a considerable extent," said Bhavin Patel, co-founder and CEO of LenDenClub, a peer-to-peer lender.

In the same vein, Omidyar Network, which backs India Stack and funds start-ups and research on Aadhaar, said that private sector companies will now look up to the Parliament to pass a legislation that clarifies the restrictions and possibilities of using Aadhaar.

"The direction by the court on private sector use cases will now require Parliament to pass laws that allow for specific uses. Such parliamentary oversight on private sector uses is warranted and desirable," said C V Madhukar, global digital identity initiative lead at Omidyar Network.

Madhukar said that the judgement is welcome as it reinforces the faith in Aadhaar while taking care of exclusion cases. But, he said that the private companies will need to evolve their business models as the verdict raises questions on the use of e-KYC.

"The judgment raises an immediate question on the continued use of e-KYC for financial inclusion. As shown in the State of Aadhaar report, Aadhaar-based e-KYC has led to greater inclusion for underserved segments, including opening of millions of bank accounts," he added.

Meanwhile, Finance Minister Arun Jaitley also held a briefing in Delhi where he welcomed the judgement and claimed that use of Aadhaar by private companies needs legislative backing.

"Section 57 (of the Aadhaar Act that has been struck down by the Supreme Court) says that there can be special enabling power to allow other entities or body corporate (to use Aadhaar). I can give you my information (about the judgement). That is not permissible unless it is backed up by law. That seems to be the spirit of the judgement," he said.

Adding that a careful reading of the judgement is required, Jaitley said that the ban on the private sector from using Aadhaar could be "temporary". 

"I still have to do a detailed reading of the judgement. Therefore, do not assume the prohibited areas are perpetually prohibited, they could be procedurally prohibited or they could be prohibited as such," he said. 

Meanwhile, legal experts claimed that introducing a law to bypass the SC directive might not be possible given the court's stern stance. 

"As per the judgment, Section 57 fails the proportionality doctrine making the invasion of a citizen's privacy by the private players excessive. Hence, it will be difficult to bring it back through another legislation," said Prasanth Sugathan, legal director, Software Freedom Law Centre, India. 

In its judgement, the court even said that it will look into the legislation for allowing the private sector to use Aadhaar, if it ever comes.  

"It [Aadhaar] can be used for establishing the identity of an individual 'for any purpose'. We read down this provision [Section 57] 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," Justice Sikri wrote in his judgement.