2020 (10) TMI 645 - HC - Customs

Restriction on export of KN96 masks - RBI prohibited Merchanting Trade Transactions (MTT) / Receipt of consideration in foreign currency - Validity of circular issued by the Reserve Bank of India dated 23/01/2020 which is in respect of Merchanting Trade Transactions (MTT) - Reserve Bank of India has refused the permission for the subject MTT contract for supply of KN95 masks from China to United States of America - petitioner s contention is that prohibition imposed by Reserve Bank of India is a total prohibition which violates petitioner s fundamental rights guaranteed under Section 19(1)(g) and 21 of the Constitution of India and therefore Clause 2(iii) deserves to be struck down by this Court. HELD THAT - The Government of India has issued a notification dated 28/07/2020 and later on 25/08/2020 which has already been reproduced earlier and N-95 / FFP2 Mask or its equivalent are under restricted category - The Reserve Bank of India has to be adhere to the policy decision taken by the Government of India and in that backdrop the Reserve Bank of India issued executive instructions / circular dated 23/01/2020. Once import of a particular product is barred or export of a particular product is barred the question of permitting the Merchanting Trade Transactions in respect of that particular products does not arise. The circular dated 23/01/2020 provides a restriction upon the Merchanting Trade Transactions and goods which are permitted for export / import under the prevailing Foreign Trade Policy can be subjected to Merchanting Trade Transactions. The Merchanting Trade Transactions also requires adherence to all rules regulations and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry) - The conditions imposed by Government of India as well as Reserve Bank of India are of general application to every Indian entity wishing to carry on Merchanting Trade Transactions. The conditions are neither specific either to petitioner s business nor to a particular products such as Ventilators or Medical Personal Protective Equipment. The Merchanting Trade Transactions involves foreign exchange and issuance of a Letter of Credit in India from a banker as well as Reserve Bank of India through its authorised dealer in foreign exchange. The banker as well as Reserve Bank of India are located in India and therefore there is a clear nexus between the transactions and the involvement of foreign exchange reserves of Reserve Bank of India - The Foreign Trade Policy is in existence framed by Government of India in exercise of powers conferred under the Foreign Trade (Development Regulation) Act 1992 and notifications have been issued by Government of India keeping in view the powers conferred by Section 3 of the Act of 1992. Its purely a policy decision taken by Government of India in larger public interest as there is an acute shortage of the goods which are the subject matter of the present writ petition. Thus in short the statutory provisions rules circulars and notifications issued from time to time permits Merchanting Trade Transactions only in respect of goods that are permitted for export and import under the prevailing Foreign Trade Policy of India and the question of complete ban in respect of freedom of trade and commerce as argued by learned counsel does not arise. In our country keeping in view the COVID-19 Pandemic large number of front line health workers and Doctors have succumbed to Corona Virus on account of inadequate Personal Protective Equipment Kits. The Ventilators are also in short supply and therefore the Government of India is the best judge either to ban export of the aforesaid items or to place the aforesaid items under the restricted categories. It is true that the Constitution of India guarantees fundamental right in respect of freedom of trade and commerce however the same can be subjected to reasonable restrictions as the same has been done in the present case. The restriction imposed by Government of India and Reserve Bank of India amounts to reasonable restriction and in noway violating the freedom of trade and commerce as pleaded by the petitioner - Petition dismissed.

Summary

Issues Involved:
1. Validity of Clause 2(iii) of the RBI Circular dated 23/01/2020.
2. Alleged violation of fundamental rights under Articles 19(1)(g) and 21 of the Constitution of India.
3. Reasonableness and proportionality of restrictions imposed on Merchanting Trade Transactions (MTT) involving PPE products.

Detailed Analysis:

1. Validity of Clause 2(iii) of the RBI Circular dated 23/01/2020:
The petitioner challenged Clause 2(iii) of the RBI Circular dated 23/01/2020, which restricts MTT to goods permitted for export/import under the prevailing Foreign Trade Policy (FTP) of India. The petitioner argued that this clause is arbitrary and violates their fundamental rights. However, the court noted that such restrictions have been in place since 2000 and are essential for regulating foreign exchange and aligning with the FTP. The court emphasized that the RBI’s circulars are issued under the statutory authority of the Foreign Exchange Management Act, 1999, and are necessary for managing the country’s foreign exchange reserves.

2. Alleged violation of fundamental rights under Articles 19(1)(g) and 21 of the Constitution of India:
The petitioner contended that the prohibition imposed by the RBI violates their fundamental rights to practice any profession or to carry on any occupation, trade, or business under Article 19(1)(g) and the right to life under Article 21. The court referred to several Supreme Court judgments, including Kasinka Trading Vs. Union of India and State of Haryana Vs. Mahabir Vegetable Oils (P) Ltd., which upheld the government's power to impose restrictions in the public interest. The court concluded that the restrictions imposed by the RBI and the government are reasonable and necessary to ensure adequate supplies of PPE products within India during the COVID-19 pandemic.

3. Reasonableness and proportionality of restrictions imposed on MTT involving PPE products:
The petitioner argued that the absolute prohibition on MTT of PPE products is disproportionate and does not serve the larger public interest. They cited cases like Internet and Mobile Association of India Vs. Reserve Bank of India, where a total ban on virtual currencies was struck down. However, the court distinguished this case, emphasizing that the prohibition on MTT of PPE products is not absolute and is a policy decision taken in larger public interest due to the acute shortage of PPE products during the pandemic. The court also highlighted that the government has the authority to regulate imports and exports under the Foreign Trade (Development & Regulation) Act, 1992, and such policy decisions are not subject to judicial interference unless fraud or lack of bona fides is established.

Conclusion:
The court dismissed the writ petition, holding that the restrictions imposed by the RBI and the government on MTT involving PPE products are reasonable and necessary in the public interest. The court affirmed that the circular issued by the RBI does not violate the petitioner’s fundamental rights and that policy decisions related to foreign trade are within the domain of the government and not subject to judicial review in the absence of fraud or lack of bona fides.