Supreme Court Upholds Ban on MTTs in PPE Products

The Supreme Court upheld the judgment of the Madhya Pradesh High Court, ruling that Clause 2(iii) of the 2020 MTT Guidelines was constitutional and proportionate in prohibiting MTTs in PPE products to ensure adequate domestic stock during the COVID-19 pandemic. The measure was deemed valid in serving a legitimate state interest without unduly infringing on the appellant's fundamental rights. Consequently, the appeal was dismissed.

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Issues Involved:
1. Constitutionality of Clause 2(iii) of the 2020 MTT Guidelines.
2. Violation of Articles 14, 19(1)(g), and 21 of the Constitution.
3. Proportionality of the RBI’s decision to prohibit MTTs in PPE products.

Issue-wise Detailed Analysis:

1. Constitutionality of Clause 2(iii) of the 2020 MTT Guidelines:
The appeal arises from a judgment by the Madhya Pradesh High Court, which upheld Clause 2(iii) of the Revised Guidelines on Merchanting Trade Transactions (MTT) dated 23 January 2020. The clause states that MTTs shall be undertaken for goods permitted for exports/imports under the prevailing Foreign Trade Policy (FTP) of India. At the relevant time, the export of PPE products was banned due to the COVID-19 pandemic, making MTT contracts concerning PPE products impermissible under Clause 2(iii).

2. Violation of Articles 14, 19(1)(g), and 21 of the Constitution:
The appellant argued that Clause 2(iii) of the 2020 MTT Guidelines violates the right to carry on business under Article 19(1)(g) and the right to life and livelihood under Article 21. The RBI contended that the prohibition was necessary to ensure adequate domestic stocks of PPE products during the pandemic. The High Court held that the clause was general in its application and did not specifically prohibit MTT in PPE products, and that the decision to modify the FTP to prohibit import/export of goods is a policy decision of the Ministry of Commerce and DGFT under the Foreign Trade Act.

3. Proportionality of the RBI’s decision to prohibit MTTs in PPE products:
The Court conducted a proportionality analysis to determine the constitutionality of the RBI’s decision. The analysis was structured along four prongs:

C.1 Legitimacy:
The aim of ensuring adequate domestic supplies of PPE products during a global health pandemic is legitimate. The RBI’s affidavit elaborated on the necessity of ensuring adequate stock of PPE products considering the ongoing pandemic.

C.2 Suitability:
The prohibition of MTTs in relation to PPE products was suitable for achieving the stated objective. MTTs are regulated by the RBI under FEMA, which aims to preserve India’s foreign exchange reserves. The RBI has consistently linked the permissibility of MTTs to the FTP, which reflects the UOI’s policy decision on the import/export of goods.

C.3 Necessity:
The prohibition of MTTs in PPE products was necessary to ensure that Indian foreign exchange reserves were not utilized to facilitate the hoarding of PPE products by wealthier nations. A mere ban on exports would not regulate the utilization of Indian foreign exchange. Therefore, the prohibition was the least restrictive manner of achieving the legitimate State interest.

C.4 Balancing fundamental rights with State aims:
The Court emphasized the regulatory role of the RBI, which is entrusted with managing India’s foreign exchange market. The RBI’s decision to prohibit MTTs in PPE products was found to be rationally connected to the objective of preserving public health. The Court deferred to the regulations imposed by the RBI and the UOI, considering the need to preserve public health during a pandemic.

Conclusion:
The Supreme Court upheld the judgment of the Madhya Pradesh High Court, holding that Clause 2(iii) of the 2020 MTT Guidelines was a proportionate measure to ensure the availability of sufficient domestic stock of PPE products. The measure was validly enacted in pursuance of a legitimate state interest and did not disproportionately impact the fundamental rights of the appellant. The appeal was dismissed.

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