Global Economy

Supreme Court upholds RBI's guidelines prohibiting export of PPE kits


In a significant verdict, the Supreme Court Monday upheld the validity of certain Guidelines on Merchanting Trade Transactions (MTT) of RBI denying letter of credit for exporting PPE kits during COVID-19 pandemic, saying democratic interests which secure the welfare of masses cannot be “judicially aborted” to preserve “unfettered freedom” to do business of the few. A bench of Justices Chandrachud, Justice Vikram Nath, and Justice BV Nagarathna dismissed the appeal of a director of a firm that trades in pharmaceuticals that his company was prohibited from acting as an intermediary by importing PPE kits from China to export them to the US.

It was alleged that trade restrictions of RBI amounted to a violation of the fundamental right to freedom to trade and business guaranteed under Article 19(1)(g) of the Constitution.

Dismissing the plea, the verdict said, “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”.

Justice Chandrachud, writing the 55-page judgement, said it was not the stance of the court that the power of “judicial review is stowed in cold storage” until a public health crisis tides over and this court retains its role as the constitutional watchdog to protect against state excesses.

The court 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, it said.

“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 verdict said.

“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,” it said.

It upheld the judgment of October 8, 2020, of the Madhya Pradesh High Court to be a valid one in finding the MTT Guidelines to be constitutionally valid.

It said that the decision to not allow export 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.”

“This Court must be bound by a similar obligation, in order to preserve its fidelity to the Constitution. With the transformation in the economy, the Courts must also be alive to the socio-economic milieu. The right to equality and the freedom to carry on one’s trade cannot in here 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,” it said.

Dealing with the role of RBI, it said the federal bank has been entrusted with the exclusive authority to operate the monetary policy framework of India, and hence it is settled that the bank is a special, expert regulatory body that is insulated from the political arena.

“Its decisions are reflective of its expertise in guiding the economic policy and financial stability of the nation..,” it said, adding, “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.”

Regulating the economy is reflective of the compromise between the interests of private commercial actors and the democratic State that represents and protects the interests of the collective, it said.

Referring to the facts of the case, it said RBI has demonstrated a rational nexus in the prohibition in respect of PPE products and the public health of Indian citizens.

“The critical links between FTP (foreign trade policy) 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. However, the RBI has carefully established the connection between the use of Indian foreign exchange reserves, MTTs, and the availability of domestic stocks…,” it said.

As a developing country with a sizable population, RBI’s policy to align MTT permissibility with the FTP restrictions on import and export of PPE products cannot be questioned, it said.



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