Court Validates RBI Circular Restricting MTT with PPE Products

The court upheld the validity of Clause 2(iii) of the RBI Circular dated 23/01/2020, emphasizing its necessity for regulating foreign exchange and aligning with the Foreign Trade Policy. It dismissed the petition challenging the restrictions on Merchanting Trade Transactions (MTT) involving PPE products, ruling that the restrictions were reasonable and essential for managing the country's foreign exchange reserves and ensuring an adequate supply of PPE products during the COVID-19 pandemic. The court held that such policy decisions fall within the government's domain and are not subject to judicial review without evidence of fraud or lack of bona fides.

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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.

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