NEW DELHI (Reuters) - India’s Supreme Court on Wednesday upheld the validity of a controversial biometric identity system, but flagged privacy concerns and reined in a government push to make it mandatory for everything from banking to telecom services.

FILE PHOTO: A woman goes through the process of eye scanning for Unique Identification (UID) database system in the outskirts of the western Indian city of Ahmedabad February 13, 2013. REUTERS/Amit Dave/File Photo

The ruling was cheered by critics of the system, known as Aadhaar, which has already provided biometric ID for more than a billion people, making it the world’s biggest biometric identity project.

Critics had expressed fears it could spawn a surveillance state and smooth the way for companies to profile clients.

“This is a fabulous judgment,” said lawyer Kapil Sibal, a member of the opposition Congress party.

“It takes care of citizens’ rights and it ensures we don’t have a surveillance state in place, it ensures that our privacy is not intruded into, and at the same time, it protects the rights of the marginalized,” he told television channel CNN-IBN.

A majority ruling by a panel of five judges cleared the use of Aadhaar for welfare schemes, saying it empowered the poor and marginalized.

Among other objectives, Aadhaar - which has a unique number tied to an individual’s fingerprints, face and iris scan - aims to block theft and leakage in India’s $23.6-billion-a-year food welfare program.

“What we are emphasizing is that the remedy is to plug the loopholes rather than ax a project, aimed for the welfare of large section of the society,” said Justice A.K. Sikri, who delivered the ruling, adding that beneficiaries would be harmed if Aadhaar were to be shelved.

REDRESS SYSTEM

Aadhaar is the latest in a string of landmark rulings by the Supreme Court, which threw out a colonial-era ban on gay sex this month and declared privacy a fundamental right last year.

The four-to-one Aadhaar ruling found the program had merits, but it struck down a government effort to make it mandatory for everything from opening a new bank account to getting a mobile phone connection and school admission.

“The reason why we challenged (it) was because it went beyond the public distribution system, beyond protecting the marginalized, and tried to create a surveillance state,” Sibal said.

The dissenting judge, Justice D.Y. Chandrachud, ruled the passage of the Aadhaar Act a “fraud on the constitution” as it had been passed as a money bill, allowing the government to bypass approval from parliament’s upper house, the Rajya Sabha.

In a scathing dissent, he also wrote that Aadhaar violated the right to privacy, as it could lead to profiling of voters.

The court also said the Aadhaar law must have provisions for redress for anyone who suffers data or identity theft due to lapses on the part of UIDAI, or Unique Identification Authority of India - the body that manages the Aadhaar program.

Critics had argued that the current law offers no redress. Media have reported several cases of Aadhaar data breaches, but the UIDAI has argued it is foolproof and secure.

Still, backers of Aadhaar took solace in the court upholding the system.

“I feel really very happy that the Supreme Court has upheld the validity and basic principle that Aadhaar is safe, Aadhaar does not violate privacy and the act is constitutionally valid,” said R.S. Sharma, UIDAI’s former chief and current head of the country’s telecom regulator.