TMI Blog2020 (10) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenging the circular issued by the Reserve Bank of India dated 23/01/2020 which is in respect of Merchanting Trade Transactions (MTT). 02-The petitioner's contention is that the petitioner is an Indian citizen and is engaged in the business of manufacturing and trading of Pharmaceutical, Herbal, Skin Care and Personal Protective Equipment (PPE) products in India and several other countries. The petitioner has further stated that Corona Virus has infected large number of people over the entire globe and Personal Protective Equipment (PPE) Kits, Masks and Ventilators are in acute shortage all over the globe. 03-The petitioner has further stated that as there was an acute shortage of PPE Kits, Masks, Sanitizer, etc. and as some of the countries were manufacturing more than the demand in their own country, the petitioner wanted to supply the goods to United States of America (USA). 04-The petitioner has further stated that he has negotiated the supply of PPE Kits and other goods with a buyer of United States of America and he has placed an order for purchase of KN95 Masks from a manufacturing Company based in China, meaning thereby, the petitioner wanted to purchase the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kits, Masks, Ventilators and Sanitizer from India and because Merchanting Trade Transactions regulations dated 23/01/2020 as contained in Clause 2(iii) which is in respect of the MTT contracts read with the Foreign Trade Policy of India prohibited such contracts, the 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. The officials of HDFC Bank have expressed their inability to the petitioner as the petitioner was carrying out the business which is not permissible. 10-The petitioner has further stated that the Director General of Foreign Trade, Ministry of Commerce through various notifications issued from January to May 2020 has prohibited export of PPE Kits, Masks, Ventilators, Sanitizer out of India to ensure that they are available to the Citizens, Doctors and Hospitals within our country. It has been stated by the petitioner that restrictions imposed by the Director General of Foreign Trade does not come in way of the petitioner as the petitioner on account of MTT Contract which has been executed with a buyer in America is exporting goods from China to America. There is no export out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when a statute invests a regulator with power to regulate, say, for example, a trade, it does not invest the authority with power wholly to prohibit or to put a stop to a trade. This view has been emphasized upon and affirmed several times. Therefore, where the objective of the impugned guideline was merely to facilitate and regulate the financial arm of Merchanting Trade Transaction, Reserve Bank of India cannot assume and exercise the power to completely prohibit MTT of PPE products. The subject MTT contract involves supply of KN95 masks (one of PPE products) manufactured by a company in China to a buyer at United States of America, therefore, the subject transaction has no bearing or reasonable connection on the availability of stock of PPE products within the territory of India. It has been further contended that the Hon'ble Supreme Court has laid down the test of reasonableness of restriction and held that laws imposing total prohibition would require close scrutiny in the cases of State of Madras Vs. V.G. Row reported in AIR 1952 SC 196 and Narender Kumar Vs. Union of India reported in AIR 1960 SC 430. 17-Learned counsel for the petitioner has stated that MTT cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to see whether such special circumstances exist to justify total prohibition. In the present case, the objectives of Director General of Foreign Trade notifications to ban exports of PPE products is completely unrelated to and has no relation or nexus with prohibition on MTT of PPE products. 20-The petitioner has prayed for the following reliefs:- a. Issue a writ of Certiorari or any other appropriate writ/order/direction in the nature of Certiorari quashing Clause 2(iii) of the Impugned Guidelines titled : RBI/2019-20/152 A.P. (DIR Series) Circular No.20 dated 23.1.2020 issued by Respondent No.1 Reserve Bank of India as being violative of the Petitioner's fundamental rights under Article 19(1)(g) and 21 of the Constitution of India; OR b. Issue a writ of Certiorari or any other appropriate writ/order/direction to the Respondents directing them to issue a necessary clarification that Clause 2(iii) of the Impugned Guidelines titled : RBI/2019-20/152 A.P. (DIR Series) Circular No.20 dated 23.1.2020 would not be applicable with respect to any MTT contracts that the Petitioner may enter into for PPE products such as Personal Protection Equipment Kit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve Bank of India does not classify and notify particular goods or services for the purpose of permitting Merchanting Trade Transactions, since that function is within the domain of the Government of India. However, the circular of Reserve Bank of India ensures that the country's foreign exchange reserves are managed by keeping in view with the country's Foreign Trade Policy issued by the Government of India. 25-It has been further stated that circular No.20 comprising the Revised Guidelines on Merchanting Trade Transactions has been issued by the Reserve Bank of India in exercise of powers under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999. The revised guidelines are not new and they have been in force with some variation since 2000. 26-The respondent No.1 has further stated that circular challenged by the petitioner, viz. Clause 2(iii) of Circular No.20, is also not new and has been substantially in force since 2000. This will be clear from a perusal of Part B of the above-mentioned earlier Circular No.9, and the same reads as under: Authorised dealers may take necessary precautions in handling merchant trade transactions or interm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n equipment. 28-It has been further stated that according to clause 2(i) of the Circular Annex. P/1, for a trade to be classified as a Merchanting Trade Transaction, the goods in question shall neither enter, nor exit, India (the Domestic Tariff Area ). Merchanting trade transactions are very closely analogous to, and have all the trappings of, export as well as import except the fact that the goods are physically not located in India. The first leg of the transaction (termed as the import leg ) requires outlay of foreign exchange by the entity located in India carrying on the transaction ( the intemediary ), for the purpose of making payment for the goods being purchased overseas. The payment is made by the Indian intermediary by drawing foreign exchange or obtaining a letter of credit in India from its banker, which is a Reserve Bank - authorised dealer of foreign exchange ( authorized dealer bank ) also located in India. Thus, there is a clear nexus of the first leg of the transaction to India and the involvement of its foreign exchange reserves. 29-Respondent No.1 has stated that similarly, in a successful trade, the Indian entity so purchasing the goods overseas recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Act, 1999, the regulation and management of the country s foreign exchange reserves has been entrusted to the Reserve Bank of India, which accordingly has the full statutory authority to enact the circular Annex.P/1 under section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999. Such circulars and directions are issued by the Reserve Bank in exercise of its statutory duty to regulate and manage the country s foreign exchange reserves, and embody the foreign exchange policy of the State. It is well settled that the Courts do not normally interfere with State policy, particularly in financial matters, unless fraud or lack of bona-fides is alleged and established. In the present case, the petitioner has neither pleaded, nor proved either of such grounds. 31-Learned counsel for the respondent No.1 has placed reliance upon judgment delivered in the case of Kasinka Trading Vs. Union of India, reported in (1995) 1 SCC 274, P.T.R. Exports (Madras) (P) Ltd. Vs. Union of India reported in (1996) 5 SCC 268 and State of Haryana Vs. Mahabir Vegetable Oils (P) Ltd. Reported in (2011) 3 SCC 778 and has prayed for dismissal of the writ petition. 32-The Union of India respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... masks or its equivalent) Free All masks (except N95/FFP2 masks or its equivalent) are freely exportable 5. Nitrile/NBR Gloves Prohibited 6. Face Shields Free Face Shields are freely exportable 2. Effect of the Notification: Notification No. 21 dated 28.07.2020 is amended to the extent that the export policy of 2/3 Ply Surgical masks, medical coveralls of all classes and categories (including medical coveralls for COVID-19) is amended from Restricted to Free category and these coveralls (including gowns and aprons of all types) are now freely exportable. Medical goggles continue to remain in restricted category with monthly quota of 20 Lakh units and Nitrile/NBR gloves continue to remain prohibited. The export police of N-95/FFP2 masks or its equivalent masks is revised from Prohibited to Restricted category. A monthly export quot of 50 lakh units has been fixed for N-95/FFP2 masks or its equivalent, for issuing export licenses to eligible applicants as per the criteria to be sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Reserve Bank of India are in force since 2000 with various variations from time to time. The relevant extracts of the circular issued by Reserve Bank of India in exercise of powers conferred under the Foreign Exchange Management Act, 1999 dated 24/08/2000 reads as under:- A. P. (DIR Series) Circular No.9 (August 24, 2000) RESERVE BANK OF INDIA CENTRAL OFFICE EXCHANGE CONTROL DEPARTMENT MUMBAI-400 001 A. P.(DIR Series) Circular No. 9 August 24, 2000 To All Authorised Dealers in Foreign Exchange Dear Sirs, Foreign Exchange Management Act, 1999 Attention of authorised dealers is invited to the Government of India Notification No.GSR.381(E) dated May 3, 2000, notifying the Foreign Exchange Management (Current Account Transactions) Rules, 2000, in terms of which drawal of exchange for certain current account transactions has been prohibited and restrictions have been placed on certain other transactions. IN terms of Rule 4 ibid, the transactions specified in Schedule II to the said Notification required prior approval of the Government of India and in terms of the Rule 5, the transactions specified in Schedule III to the Notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dated 24/08/2000, 19/06/2003, 17/01/2014 and 28/03/2014. The import and export and framing of a policy on the subject of import and export is purely within the domain of Central Government and the Central Government in exercise of its power conferred under Section 3 of the Foreign Trade (Development Regulation) Act, 1992 read with paragraph No.1.02 and 2.01 of the Foreign Trade Policy 2015-2020 has issued various amendments from time to time and its a purely policy decision to allow import / export or of particular goods keeping in view the policy framed by Central Government. Section 3 of the Foreign Trade (Development Regulation) Act, 1992 reads as under:- 3. Powers to make provisions relating to imports and exports.-(1) The Central Government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. (2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or in specified classes of cases and subject to such exceptions, if any, as may be made by or under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the involvement of foreign exchange reserves of Reserve Bank of India. 43-Shri Abhinav Malhotra, learned counsel for the petitioner has placed reliance upon a judgment delivered by the apex Court in the case of Internet and Mobile Association of India Vs. Reserve Bank of India reported in 2020 SCC OnLine SC 275 which was in respect of Digital Currency / Virtual Currency / Cryptocurrency and his contention is that a complete ban by Reserve Bank of India in respect of Digital Currency was struck down being violative of Article 19(1)(g) of the Constitution of India. 44-This Court has carefully gone through the aforesaid judgment, however, the judgment delivered by the Hon'ble Supreme Court is distinguishable on facts. There is no absolute ban imposed by Reserve Bank of India in respect of the Merchanting Trade Transaction contracts. 45-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 Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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. 49-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. 50-Shri Malhotra while the matter was being argued has stated before this Court that the petitioner is now importing goods from South Africa and is exporting it to United States of America and therefore, the petitioner now be permitted to avail the facility of Merchanting Trade Transactions. In the considered opinion of this Court, once import of a particular item is banned in India or its export is banned, such permission can never be gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of a right referable only in a particular area of activity, or relative to only particular matters, does not amount to a total prohibition but only a restriction. In the present case the petitioner is free to import (but not export) PPE kits into India. The petitioner is also free to carry on Merchanting Trade Transactions in respect of all other goods where the export and import of which is permitted under the country s Foreign Trade policy. 55-In the case of Indian Handicrafts Emporium Vs. Union of India reported in (2003) 7 SCC 589, the Hon'ble Supreme Court upheld a complete ban on ivory. In the aforesaid case the apex court has Court held as under:- 38. In order to determine whether total prohibition would be reasonable, the Court has to balance the direct impact on the fundamental right of the citizens thereby against the greater public or social interest sought to be ensured. Implementation of the directive principles contained in Part IV is within the expression of restrictions in the interest of the general public. 56-In the case of Balram Kumawat Vs. Union of India reported in (2003) 7 SCC 628, the apex Court has held that the complete ban on ivory ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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