SC upholds constitutionality of RBI’s decision to ban ‘Merchanting Trade Transactions’ pertaining to PPE kits

Case Details: Akshay N Patel v. Reserve Bank of India - [2021] 133 taxmann.com 53 (SC)

Judiciary and Counsel Details

• • Dr. Dhananjaya Y. Chandrachud, Vikram Nath and B.V. Nagarathna, JJ.

Facts of the Case

In the instant case, the appellant, the managing director of a firm manufacturing pharmaceuticals and personnel protection equipment products such as masks, gloves, sanitizers, PPE overalls, and ventilators.

The Appellant obtained an international ‘Merchanting Trade Transactions’ (MTT) contract which to serve as an intermediary between the sale of PPE products by a supplier in China to a buyer in the United States. The appellant wrote to his authorized bank requesting documents (such as a letter of credit) that were required to execute the MTT contract.

Upon receiving the communication from his bank, the appellant wrote an email to the Ministry of Commerce and DGFT, stating that under his MTT contract, there was no actual export of PPE products from India. The appellant claimed that he was only serving as an intermediary in a trade between two other nations.

At the relevant time, the export of PPE products had been banned by the Union Ministry of Commerce and Industry and the Directorate General of Foreign trade, due to the ongoing COVID-19 pandemic. Therefore, MTT contracts concerning PPE products were considered impermissible under Clause 2(iii) of the 2020 MTT Guidelines.

Before the High Court, the RBI stated that the Union of India had prohibited the export of PPE products from India by issuing multiple notifications under Section 3 of the Foreign Trade (Development & Regulation) Act 1999.

Hence, following MTT Guidelines, MTT transactions concerning PPE products were also prohibited since they allowed Indian individuals to assist others in diverting PPE products away from India in the global market.

The appeal arises from a judgment of the High Court. The High Court Upheld Clause 2(iii) of the Revised Guidelines on Merchanting Trade Transactions issued by, Reserve Bank of India.

Supreme Court Held

On further appeal, the Supreme Court observed that the ban imposed on Merchanting Trade Transactions in respect of all commodities whose exports were banned by the prevailing FTP, is proportional and not unconstitutional under Article 19(1)(g) of the Constitution of India in so far as it pertained to PPE Kits though no actual export of PPE Kits from India was involved to affect the supply of PPE Kits in India and petitioner was only an intermediary in the transaction of PPE kits between a supplier in China and a buyer in the US.