RBI Regulations For Export Ban On PPE Kits upheld by Apex Court

Supreme Court held that Clause 2(iii) of the 2020 MTT Guidelines is to ensure the availability of sufficient domestic stock of PPE products.

Issue  

The appellant has challenged the constitutionality of Clause 2(iii) of the 2020 MTT (Merchanting Trade Transactions) Guidelines by alleging a violation of his rights under Articles 14, 19(1)(g) and 21.  

Appellant has raised the issue on the grounds of RBI’s restriction to prohibit MTTs in PPE products is restrictive of the appellant’s right to equality under Article 14 on the ground that it is arbitrary, whether it is a reasonable restriction on the appellant’s freedom to conduct trade under Articles 19(1)(g) read with Article 19(6), and if it violates the appellant’s liberty and right to livelihood under Article 21. 

Facts  

• The appellant is the managing director of a firm that manufactures and trades in pharmaceuticals; herbal and skincare products; and personnel protection equipment products such as masks, gloves, sanitizers, PPE overalls, and ventilators. 
• The appellant was in international MTT contract for serving as an intermediary between the sale of PPE products by a supplier in China to a buyer in the United States. 
• In accordance with the 2020 MTT Guidelines, the appellant wrote to his authorized bank on 1 May 2020 requesting documents (such as a letter of credit) that were required to execute the MTT contract. The bank informed the appellant on 4 May 2020 that RBI had denied permission for his MTT contract, on the basis of Clause 2(iii) of the 2020 MTT Guidelines. 
• Union Ministry of Commerce and Industry and the Directorate General of Foreign Trade banned the export of PPE products through successive notifications dated 8 February 2020, 25 February 2020 and 19 March 2020, due to the ongoing COVID-19 pandemic. Therefore, MTT contracts concerning PPE products were considered impermissible under Clause 2(iii) of the 2020 MTT Guidelines. 
• Thereafter, appellant wrote an email to the Ministry of Commerce and DGFT on 12 May 2020, regarding that under his MTT contract, there was no actual export of PPE products from India rather he was only serving as an intermediary in a trade between two other nations. Hence, he requested the Ministry of Commerce and DGFT to clarify exempting MTT contracts in relation to PPE products from the requirements of Clause 2(iii). 
• After not hearing from the respondent appellant filed writ petition in Madhya Pradesh High Court regarding same issue, to which High Court held that  
• Clause 2(iii) only prohibits MTTs for goods that cannot be imported/exported into India which is generally applicable and does not specifically prohibit MTT in PPE products; 
• It is the decision Ministry of Commerce and DGFT under the Foreign Trade Act to modify the FTP to prohibit import/export of goods is a policy decision of the; 
• Due to COVID-19 the export of PPE products is prohibited and consequently, MTTs are also prohibited under Clause 2(iii); 
• After the impugned judgement of High Court Appellant filed the appeal before the Supreme Court. 

Findings  

This Court had accepted the Canadian Supreme Court’s analysis of the doctrine of proportionality and held it to be applicable to constitutional rights in India by stating that when a law limits a constitutional right, such a limitation is constitutional if it is proportional. The law imposing restrictions will be treated as proportional if it is meant to achieve a proper purpose and if the measures taken to achieve such a purpose are rationally connected to the purpose, and such measures are necessary. 

The Court also adopted an integrated proportionality analysis where the limitation on each of the rights is common and affects them in a similar way. 

Talking about RBI’s decision the RBI is responsible for issuing guidelines to authorized persons under FEMA. Hence, the role of the RBI under FEMA is directed towards ensuring that India’s foreign exchange market is regulated, with a view to preserving India’s foreign exchange reserves. On a review of the guidelines issued by the RBI in respect of MTTs since 2000, it became clear that most of them are technical in nature and seek to regulate the manner in which India’s foreign reserves are traded. Consequently, the RBI has not made the policy decision to classify products for which MTTs are impermissible but has opted to rely on the decision made by the UOI under the FTP. 

Judgment  

Supreme Court held that the judgment dated 8 October 2020 of the Madhya Pradesh High Court was correct in holding that Clause 2(iii) of the 2020 MTT Guidelines was a proportionate measure in ensuring the availability of sufficient domestic stock of PPE products. The measure was validly enacted, in pursuance of legitimate state interest and did not disproportionately impact the fundamental rights of the appellant.