BENGALURU, Karnataka — The Supreme Court's majority judgement on India's controversial Aadhaar biometric identity project upheld the constitutionality of the scheme, but struck down section 57 of the Aadhaar Act—a provision allowing corporate entities to use the database.
The bench also said that private companies will not be able to demand Aadhaar from their customers.
Analysts said this would come as a blow for companies such as Jio and Paytm, which rely heavily (or even exclusively) on technologies such as Aadhaar's eKYC (an Aadhaar-enabled Know Your Customer service) to grow their customer base.
HuffPost India reached out to a number of companies, including Paytm, Reliance Jio and LendingKart, which have been using eKYC, but have received no comment from any of the companies so far. We will update this story when we hear back from them.
eKYC Will Become Difficult
"I believe eKYC will be difficult for companies to go with," said Pavel Naiya, senior analyst at Counterpoint Research. "Earlier it was a one-step process. Now, I think they need to look for alternative ways to identify their customers."
This falls in with the norms you see internationally, Naiya added. "If you see other countries, their citizens don't share their unique ID number, like the social security number, so this is kind of a similar concept. The Aadhaar is made to provide essential beneficiary services to the citizens and this particular verdict keeps the importance of that concept in mind."
Naiya added that this judgement would have an obvious impact on companies like Jio, as it would potentially slow down their growth, and increase the cost of bringing in new customers.
"The process for companies like Reliance Jio would become much slower now, just like it used to be before," said Naiya. "That way, yeah, the overall resources that companies will have to put into the user verification process will go up and so will the costs. But that's not the purpose of Aadhaar so keeping that in mind, the verdict was done."
As noted by Ajith George, co-founder and COO of Finahub Technology Solutions, Reliance Jio's rapid growth was made possible by eKYC, as it allowed people to sign up with zero paperwork, and walk out of the store with a working connection, at a much lower cost to the company than traditional KYC.
The Devil Is In The Details
Explaining the legal factors in more detail, technology lawyer and online civil liberties activist Mishi Choudhary said that the judgement seems to focus the Aadhaar as a tool for welfare, and move it away from private businesses.
Unless you're in a welfare scheme, or filing income taxes, other than these two purposes, the scope of Aadhaar has been curtailed
"Section 57 empowered the use of Aadhaar for establishing identity, but there is no other section that empowers them to access the Aadhaar," she said, and added that since this is the case, it most likely means tools like eKYC will be impacted. "I'm waiting for a copy of the full judgement, but based on what has been said, this seems to be the case."
"Unless you're in a welfare scheme, or filing income taxes, other than these two purposes, the scope of Aadhaar has been curtailed," she said. "That's what emerges from what we've seen so far, though obviously the devil is in the details."
Aadhaar Might Still Play A Role In The Private Sector
At the same time, Choudhary did not rule out the possibility that Aadhaar may continue to play a role for companies.
"When they talk about kids, when they talk about school admission, they say none of this will require Aadhaar," she explained. "So mobile phones, not required, bank account linking, again not required, these are the important things from a consumer perspective. I am a regular person, what do I require Aadhaar for? If I am on one of the welfare schemes or filing my income tax, then I need to have an Aadhaar."
"It was never intended for companies to use, and then Section 57 was introduced to say that nothing will prevent anyone from using it," she added. "Now the court said no one should be requiring... having said that, I do not know if Aadhaar can become one more of available mechanisms, like passports, or licences. That's by choice, and some people already have it, because they were bullied into getting it, and so they might want to use it."
That said, Choudhary added that based on what has been made public so far, the judgement will not allow private companies to only accept Aadhaar, and will require them to at least accept other forms of identification as well.
Advocate Rakesh Dwivedi, who appeared for the UIDAI and the government of Gujarat in this case, told NDTV that the court had struck down Section 57 as there was no specific law defining how private companies would access Aadhaar.
Companies could regain access to the Aadhaar framework if the government brought in an appropriate law, Dwivedi said.
The Cellular Operators Association of India (COAI) is taking a wait and watch approach for now. "We respect the Aadhaar verdict of the honourable Supreme Court, the apex court of India. We are going to review the judgement and its implications," said Rajan S Mathews, DG, COAI. "We shall await further orders and instructions from DoT. Our member operators as always will definitely comply with the law."
And in a press conference, the Finance Minister Arun Jaitley added that the government is examining the court's provisions on private companies, indicating that private companies could continue to use the data if a law is put in place.