Supreme Court Upholds RBI Regulations For Export Ban On PPE Kits; Says 'Well Being Of Masses Over Right To Business Of Few'

The Supreme Court on Monday upheld the measures adopted by the Reserve Bank of India to implement the ban imposed by the Union Government on the export of Personal Protective Equipment(PPE) Kits in view of the COVID-19 pandemic.

A bench comprising Justices Dr DY Chandrachud, Justice Vikram Nath and Justice BV Nagarathna rejected the argument of a business person that the restrictions amounted to violation of his fundamental right to freedom to trade and business guaranteed under Article 19(1)(g) of the Constitution of India(Akshay N Patel versus Reserve Bank of India and others).

The appellant was essentially challenging  Clause 2(iii) of the Revised Guidelines on Merchanting Trade Transactions(MTT) dated 23 January 20202 issued by the Reserve Bank of India in the exercise of its power under Section 10(4) and 11(1) of the Foreign Exchange Management Act 1994. He had earlier unsuccessfully challenged the regulations before the Madhya Pradesh High Court, following which he filed Special Leave Petition before the Supreme Court challenging the HC judgment.

The petitioner was the managing director of a firm that manufactures and trades in pharmaceuticals and healthcare products like PPE kits. He had obtained a contract to serve as an intermediary between the sale of PPE products by a supplier in China to a buyer in the United States. When he wrote to his bank seeking documents such as letter of credit to execute the MTT contract for the above transaction, he was denied the same. He was informed that the RBI had denied permission for the MTT contract in view of the export ban imposed by the Union Government on PPE Kits.

Proportionality test satisfied

The Supreme Court examined the restrictions on the basis of the "test of proportionality" evolved in cases like KS Puttaswamy and Modern Dental College.

The following are the questions which arise to determine proportionality :

(i) Is the measure in furtherance of a legitimate aim?;

(ii) Is the measure suitable for achieving such an aim?;

(iii) Is the measure necessary for achieving the aim?; and

(iv) Is the measure adequately balanced with the right of the individual?

Legitimacy

As regards the legitimacy of the restrictions, the Supreme Court observed :

"In this case, the ban on exports, imports and MTTs of PPE products is to ensure the availability of adequate domestic supplies during a global health pandemic. 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 Supreme Court observed that the executive's aim to ensure sufficient availability of PPE products, considering the ongoing pandemic, is legitimate. Accordingly, the Court held that 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

Next, the Court examined if the restrictions are suitable to achieve the intended objective. In this connection, the appellant argued that he was only an intermediary facilitating the transfer of kits between USA and China and that the goods were not entering the territory of India.

In this connection, the Court referred to the IMF guidelines to note that while the goods involved in an MTT never enter the territory of the intermediary, they are still recorded as negative and positive exports from the territory of intermediary during the import and export leg of the MTT, which is similar to how ordinary imports and exports would be recorded.

"Therefore, 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 Court observed.

Necessity

The appellant contended that a prohibition of exports in PPE products was sufficient to achieve the objective of ensuring adequate supplies, and it was not necessary to also prohibit MTTs.

In this regard, the Court observed :

"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. Hence, 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 rights with State's aims

The Court said that it 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 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", stated the judgment authored by Justice Chandrachud.

The Court noted that the RBI has demonstrated a rational nexus in the prohibition of MTTs in respect of PPE products and the public health of Indian citizens.

"As a developing country with a sizeable population, RBI's policy to align MTT permissibility with the FTP restrictions on import and export of PPE products cannot be questioned. Thus, this Court is constrained to defer to the regulations imposed by RBI and the UOI, in the interests of preserving public health in a pandemic", the Court observed.

"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", the Court said.

The Court also acknowledged the regulatory powers of the Reserve Bank of India under the FEMA and held that since the RBI's decisions are reflective of its domain expertise, judicial interference must be limited.

In the end, the Court concluded that the RBI decision 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. For the reasons noted in this judgment, we see no need to interfere", the Court concluded.

Case Title : Akshay N Patel versus Reserve Bank of India and others

Appearances : Advocate Aayush Agarwala for appellant; Advocate MR Ramesh Babu for RBI; Additional Solicitor General Vikramjeet Banerjee for Union Govt

Citation : LL 2021 SC 711

Click here to read/download the judgment