The Orissa High Court has dismissed a petition filed by former Member of Parliament (MP) Tathagata Satapathy, challenging the mandatory requirement of linking Aadhaar with the Permanent Account Number (PAN) for operating dematerialized (demat) accounts.
The court ruled that this requirement, mandated under Section 139AA of the Income Tax Act, is constitutional and does not violate the right to privacy. Justice Dr. Sanjeeb Kumar Panigrahi, while delivering the judgment, stated:
“The mandatory linking of Aadhaar with PAN and demat accounts aligns with the principles established in Puttaswamy and satisfies the triple test of legality, necessity, and proportionality. It is backed by valid legislation, serves a legitimate state interest, and imposes only a proportionate restriction on privacy.”
Case Background
Tathagata Satapathy, a four-time MP from Odisha, held a savings account at HDFC Bank’s Cuttack-Puri Road Branch. On the advice of bank officials, he invested ₹25 lakhs in a demat account through HDFC Securities in December 2019 and began trading in January 2020.
However, in July 2023, his demat account was made dormant by the bank due to the absence of Aadhaar linkage. The petitioner, who had deliberately never enrolled for Aadhaar, argued that Aadhaar was not mandatory for banking transactions, citing a Supreme Court ruling. He requested the bank to resolve the issue, but his account remained inactive.
When the bank refused to reactivate his account or transfer his holdings to his wife's demat account without Aadhaar-PAN linkage, Satapathy filed a writ petition, contending that the restriction was unconstitutional, arbitrary, and against Supreme Court directives.
Court’s Observations
During the case proceedings, it was noted that while the petition was pending, the bank unfroze Satapathy’s demat account on June 3, 2024, following a circular from the National Securities Depository Limited (NSDL).
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However, the court chose to proceed with the case to clarify the legal position on mandatory PAN-Aadhaar linkage for demat accounts. The primary question before the court was whether this requirement complied with constitutional guarantees, particularly the right to privacy under Article 21.
Supreme Court Precedents
The Orissa High Court referred to Binoy Viswam v. Union of India (2017), in which the Supreme Court upheld Section 139AA, emphasizing that linking Aadhaar with PAN is crucial to preventing tax evasion and fraudulent financial activities.
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Additionally, in Justice K.S. Puttaswamy v. Union of India (2018), the Supreme Court reaffirmed that Section 139AA does not violate the right to privacy, as it meets the test of legality, necessity, and proportionality.
"By linking Aadhaar, a unique biometric-based identity, with PAN, authorities can effectively track income, detect discrepancies, and curb tax evasion in the securities market," observed Justice Panigrahi.
The court highlighted the misuse of the securities market for tax evasion and money laundering through shell companies and benami demat accounts. Justice Panigrahi noted:
“The anonymity provided by multiple (often fake) PAN cards and unverified accounts has facilitated tax evasion. Fraudulent actors have used benami demat accounts for high-value transactions while avoiding taxation.”
The government introduced Aadhaar-PAN linking under Section 139AA of the Income Tax Act as a crucial measure to enhance financial integrity and transparency. This initiative aims to eliminate duplicate and fake PAN cards, which have been widely misused for fraudulent activities. By ensuring that each PAN is linked to a unique Aadhaar number, authorities can effectively prevent tax evasion and detect discrepancies in financial transactions. Moreover, the linkage strengthens regulatory oversight, helping to increase financial transparency and curb illicit activities such as money laundering in the securities market.
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To enforce compliance, regulatory bodies like the Securities and Exchange Board of India (SEBI) and the National Securities Depository Limited (NSDL) have mandated strict adherence to this requirement. This ensures that demat accounts remain legitimate investment channels rather than being exploited for unauthorized financial activities. By implementing these measures, the government aims to fortify the financial system against misuse while promoting accountability and adherence to tax laws.
Case Title: Tathagata Satapathy v. HDFC Bank Ltd., Mumbai & Ors.
Case No: W.P.(C) No. 875 of 2024
Date of Judgment: February 14, 2025
Counsel for the Petitioner: Mr. Yasobanta Dash, Senior Advocate along with Mr. N.C. Mohanty, Advocate
Counsel for the Respondents: Mr. Gautam Mukherjee, Senior Advocate along with Mr. D.N. Mishra; Mr. Rajeet Roy, Advocate along with Mr. S. Sourav, Advocate; Mr. Tapesh Roy, Advocate along with Mr. S. Roy, Advocate
