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Taking cognisance of video footage telecast by television channels, the EC served a notice on the SP leader and sought a reply by March 14, an EC spokesman said in New Delhi.
Chief Electoral Officer AK Bishnoi said he had sought a report from the concerned district magistrate in this regard. Video footage of some people distributing money at a Holi Milan programme at Yadav's native Saifai in Etawah district on Wednesday was aired by some news channels but the SP chief denied that he had distributed any money and claimed it was a tradition to "reward" those who perform during Holi festivities.
"If you want to ban it than ban the Holi festival too," a miffed SP chief told media persons in Lucknow.
"It's a tradition to give reward to those who dance and sing on Holi. But unfortunately this time I have not given anything to anyone", he said.
"If some workers have given something to them from their own pocket they have done so on their own," he said. Criticising electronic media for airing footage of the Holi function, Yadav said it was not fair to "politicise traditions" followed during festivals.
The Election Commission said the "act of bribing a large number of persons in a public gathering is clear violation of the provisions of the model code of conduct."
"It is apparent that distribution of money in your presence has been made with a view of soliciting votes and support for yourself and your party," the EC said in its notice.
Seeking his response by March 14, the EC asked the SP leader to explain as to why he "disregarded and violated the model code of conduct, failing which the commission will take further action without any further notice".
The Bharatiya Janata Party, meanwhile, accused the SP and ruling Bahujan Samaj Party in Uttar Pradesh of openly flouting model code of conduct.
"The Commission should immediately take action against him Mulayam. The way in which money is openly distributed in his presence at Saifai should not be tolerated", BJP state vice president, Hriday Narain Dixit, said.