2021 (12) TMI 297 - SC - Customs

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 ... Permissibility of Merchanting Trade Transactions - sale of PPE products by a supplier in China to a buyer in the United States - prohibition on export of PPE products through a series of notifications - genesis of the case lies in an international MTT contract which the appellant obtained to serve as an intermediary between the sale of PPE products by a supplier in China to a buyer in the United States - HELD THAT:- Adequate stocks of PPE products are critical for the healthcare system to combat the COVID-19 pandemic. The State’s aim of ensuring supplies is in furtherance of the right to life under Article 21 and the Directive Principles of State Policy mandating the State’s improvement of public health as a primary duty under Article 47. The appellant has not challenged the legitimacy of this aim of ensuring adequate PPE in India. The RBI, at the time of filing its affidavit on 30 January 2021, had elaborated on the state of the pandemic in the country and the necessity of ensuring adequate stock of PPE products. The executive’s aim to ensure sufficient availability of PPE products, considering the ongoing pandemic, is legitimate - the impugned measure is enacted in furtherance of a legitimate aim that is of sufficient importance to override a constitutional right of freedom to conduct business. Suitability - HELD THAT:- It is evident that the role of an intermediary in MTTs was earlier only considered as providing a service. However, this has now evolved, where the intermediary is considered to be the owner of the goods during their transit from the supplier to the buyer. Hence, goods under MTTs are recorded as negative and positive exports from the intermediary’s resident country, even when they never physically enter their territory - the international opinion favours the position taken by the respondents that MTTs are analogous to traditional imports and exports. Therefore, it was suitable for the RBI to link the permissibility of MTT in goods to the permissibility of their import/export under the FTP. As noted earlier, the appellant has not challenged notifications prohibiting the export of PPE products under the FTP. Hence, the prohibition of their MTT under Clause 2(iii) of the 2020 MTT Guidelines is also considered suitable. The necessity of the measure - HELD THAT:- First, while MTTs in PPE products may not directly reduce the stock of these products in India, it still does contribute to their trade between two foreign nations. In doing so, it directly reduces the available quantity of PPE products in the international market, which may have been bought by India, if so required. As such, MTTs contribute to reducing the available stock of PPE products in the international market that India could have acquired. Second, the UOI’s policy to ban the export of PPE products reflects their stance on the product’s non-tradability during the COVID-19 pandemic. It highlights a clear policy choice under which Indian entities shall not be allowed to export these products outside of India, in all probability to the highest buyers across the globe who may end up hoarding the global supply - banning MTTs in PPE products was critical in ensuring that Indian foreign exchange reserves are not utilized to facilitate the hoarding of PPE products with wealthier nations. A mere ban on exports would not regulate the utilisation of Indian foreign exchange. Hence, in order to keep India’s policy position consistent across the board, the prohibition of MTTs in respect of PPE products was necessary and the only alternative of ensuring the realisation of legitimate State interest. Balancing fundamental rights with State aims - HELD THAT:- This Court must be circumspect that the rights and freedoms guaranteed under the Constitution do not become a weapon in the arsenal of private businesses to disable regulation enacted in the public interest. The Constituent Assembly Debates had carefully curated restrictions on rights and freedoms, in order to retain democratic control over the economy. Regulation must of course be within the bounds of the statute and in conformity with executive policy. A regulated economy is a critical facet of ensuring a balance between private business interests and the State’s role in ensuring a just polity for its citizens - The right to equality and the freedom to carry on one’s trade cannot inhere a right to evade or avoid regulation. In liberalized economies, regulatory mechanisms represent democratic interests of setting the terms of operation for private economic actors. This Court does not espouse shunning of judicial review when actions of regulatory bodies are questioned. Rather, it implores intelligent care in probing the bona fides of such action and nuanced deference to their expertise in formulating regulations. A casual invalidation of regulatory action in the garb of upholding fundamental rights and freedoms, without a careful evaluation of its objective of social and economic control, would harm the general interests of the public. In the instant case, the RBI has demonstrated a rational nexus in the prohibition of MTTs in respect of PPE products and the public health of Indian citizens. The critical links between FTP and MTTs have been established by the respondents. Facilitating MTTs in PPE products between two distinct nations may prima facie appear as having no bearing on the availability of domestic stocks - it is not this Court’s stance that judicial review is stowed in cold storage until a public health crisis tides over. This Court retains its role as the constitutional watchdog to protect against State excesses. It continues to exercise its role in determining the proportionality of a State measure, with adequate consideration of the nature and purpose of the extraordinary measures that are implemented to manage the pandemic. Democratic interests that secure the well-being of the masses cannot be judicially aborted to preserve the unfettered freedom to conduct business, of the few. 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. Hence, Clause 2(iii) passes muster under Articles 14, 19(1)(g) and 21 - Appeal dismissed. 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.