# AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR

- **Citation:** [2021] 13 S.C.R. 231
- **Court:** Supreme Court of India
- **Decided:** 2021-12-06
- **Case number:** Civil Appeal No. 6522 of 2021
- **Bench:** Dr. Dhananjaya Y Chandrachud, Vikram Nath, B.V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/akshay-n-patel-v-reserve-bank-of-india-anr-35247
- **Pages:** 51

## Headnote

Constitution of India - Art. 14, 19(1)(g) and 21 - Foreign
Exchange Management Act, 1999 - ss. 10(4), 11(1) - Merchanting
Trade Transactions Guildelines, 2020 - Clause 2(iii) -
Proportionality of clause 2(iii) - The appellant is the managing
director of a firm that manufactures and trades in pharmaceuticals
and personnel protection equipment products such as masks, gloves,
sanitizers, PPE overalls, and ventilators etc. - Appellant obtained
International Merchanting Trade Transaction (MTT) contract to
serve as an intermediary between the sale of PPE products by a
supplier in China to a buyer in the United States - Appellant
requested its bank for required documents to execute the MTT
contract - The bank informed the appellant that RBI had denied
permission for his MTT contract, on the basis of clause 2(iii) of the
2020 MTT Guidelines - At the relevant time, the export of PPE
products were banned by the Government through various
notifications due to ongoing COVID-19 pandemic - Therefore, MTT
contracts concerning PPE were considered impermissible - Writ
petition by the appellant - Appellant challenged the Constitutionality
of clause 2(iii) of 2020 MTT guidelines - High Court upheld the
constitutionality of clause 2(iii) - On appeal, held: 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
[2021] 13 S.C.R.231
231
A
B
C
D
E
F
G
H
232
SUPREME COURT REPORTS
[2021] 13 S.C.R.
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 - The High Court
was correct in holding that clause 2(iii) of the 2020 MTT Guidelines
was a proportionate measure 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 u/Art.14, 19(1)(g) and 21.
Dismissing the appeal, the Court
HELD: 1. Various principles have been espoused by this
Court to bring about a balance between the perceived interest of
the state of social control over the economy, with the rights and
freedoms of individuals. The appellant has cited various decisions
to argue for heightened scrutiny of legislative or administrative
action which places an absolute prohibition on an individual's right
to conduct trade or business. The judicial evolution of a fourpronged analysis of proportionality displaces the varying
standards that were prescribed to determine "reasonableness"
under Article 19(6). The qualitative nature of a right and the
corresponding scrutiny of its violation cannot be a sole function
of the degree of restriction. Every violation of rights, irrespective
of the degree of the infraction, must be evaluated through a
uniform principle that promotes a culture of justification. The
decision of a nine-judge Bench of this Court in K S Puttaswamy
v. Union of India ("K S Puttaswamy (9J)") prescribed a
proportionality analysis for determining violations of fundamental
rights under Part III. A proportionality analysis can adequately
consider the constitutionality of prohibitive measures on
commercial activities. Therefore, this Court will structure the
judgment on an analysis of the proportionality of RBI's decision
to prohibit MTTs in PPE produ

## Text

_Characters 0–39,707 of 114,222. This is a partial read: ask again with offset=39707 for what follows._

A
B
C
D
E
F
G
H
231
AKSHAY N PATEL
v.
RESERVE BANK OF INDIA & ANR.
(Civil Appeal No. 6522 of 2021)
DECEMBER 06, 2021
[DR. DHANANJAYA Y CHANDRACHUD,
VIKRAM NATH AND B.V. NAGARATHNA, JJ.]
Constitution of India - Art. 14, 19(1)(g) and 21 - Foreign
Exchange Management Act, 1999 - ss. 10(4), 11(1) - Merchanting
Trade Transactions Guildelines, 2020 - Clause 2(iii) -
Proportionality of clause 2(iii) - The appellant is the managing
director of a firm that manufactures and trades in pharmaceuticals
and personnel protection equipment products such as masks, gloves,
sanitizers, PPE overalls, and ventilators etc. - Appellant obtained
International Merchanting Trade Transaction (MTT) contract to
serve as an intermediary between the sale of PPE products by a
supplier in China to a buyer in the United States - Appellant
requested its bank for required documents to execute the MTT
contract - The bank informed the appellant that RBI had denied
permission for his MTT contract, on the basis of clause 2(iii) of the
2020 MTT Guidelines - At the relevant time, the export of PPE
products were banned by the Government through various
notifications due to ongoing COVID-19 pandemic - Therefore, MTT
contracts concerning PPE were considered impermissible - Writ
petition by the appellant - Appellant challenged the Constitutionality
of clause 2(iii) of 2020 MTT guidelines - High Court upheld the
constitutionality of clause 2(iii) - On appeal, held: 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
[2021] 13 S.C.R.231
231
A
B
C
D
E
F
G
H
232
SUPREME COURT REPORTS
[2021] 13 S.C.R.
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 - The High Court
was correct in holding that clause 2(iii) of the 2020 MTT Guidelines
was a proportionate measure 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 u/Art.14, 19(1)(g) and 21.
Dismissing the appeal, the Court
HELD: 1. Various principles have been espoused by this
Court to bring about a balance between the perceived interest of
the state of social control over the economy, with the rights and
freedoms of individuals. The appellant has cited various decisions
to argue for heightened scrutiny of legislative or administrative
action which places an absolute prohibition on an individual's right
to conduct trade or business. The judicial evolution of a fourpronged analysis of proportionality displaces the varying
standards that were prescribed to determine "reasonableness"
under Article 19(6). The qualitative nature of a right and the
corresponding scrutiny of its violation cannot be a sole function
of the degree of restriction. Every violation of rights, irrespective
of the degree of the infraction, must be evaluated through a
uniform principle that promotes a culture of justification. The
decision of a nine-judge Bench of this Court in K S Puttaswamy
v. Union of India ("K S Puttaswamy (9J)") prescribed a
proportionality analysis for determining violations of fundamental
rights under Part III. A proportionality analysis can adequately
consider the constitutionality of prohibitive measures on
commercial activities. Therefore, this Court will structure the
judgment on an analysis of the proportionality of RBI's decision
to prohibit MTTs in PPE products, in order to determine its
constitutionality. [Para 15][248-G; 249-A-C]
2. This Court will be relying on the justification furnished
by the RBI in determining the proportionality of the impugned
measure (Clause 2(iii) of the 2020 MTT Guidelines). This analysis
will be structured along with the following questions: (i) Is the
measure in furtherance of a legitimate aim?; (ii) Is the measure
A
B
C
D
E
F
G
H
233
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?[Para 28][258-B-D]
Legitimacy
3. This prong of the test entails an evaluation of the
legitimacy of an aim that purportedly violates a fundamental right.
The measure must be designated for a proper purpose, i.e., a
legitimate goal. Five of the judges in the nine-judge Bench
decision in K S Puttaswamy (9J) adopted the threshold of a
"legitimate state interest" as the first prong for assessing
proportionality. This state interest must also be of sufficient
importance to override a constitutional right or freedom. 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 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. Accordingly, this
Court holds 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. [Paras
29][258-E-H; 259-A]
Suitability
4. The RBI is responsible for issuing guidelines to
authorized persons under FEMA. FEMA was introduced as an
"Act to consolidate and amend the law relating to foreign
exchange with the objective of facilitating external trade and
payments and for promoting the orderly development and
maintenance of foreign exchange market in India". Hence, the
role of the RBI under FEMA is directed towards ensuring that
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
A
B
C
D
E
F
G
H
234
SUPREME COURT REPORTS
[2021] 13 S.C.R.
India's foreign exchange market is regulated, with a view to
preserving India's foreign exchange reserves. On a review of
the guidelines which have been issued by the RBI in respect of
MTTs since 2000, it is clear that most of them are technical in
nature and seek to regulate the manner in which India's foreign
reserves are traded. Consequently, the RBI has not made the
policy decision to classify products for which MTTs are
impermissible but has opted to rely on the decision made by the
UOI under the FTP. Such a decision, regarding the products in
which import or export is prohibited in India, is made by the UOI
under Section 3(2) of the Foreign Trade Act. While exercising its
powers under Section 3(2), the UOI issued multiple notifications
commencing from 8 February 2020, which prohibited the export
of all PPE products due to the need to maintain their domestic
stock during the COVID-19 pandemic. [Paras 36, 37 and 38][262E-H; 263-A, D]
5. The International Monetary Fund in its sixth edition of
the Balance of Payments and International Investment Position
Manual defines MTT. It is clear 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. [Para 42][265-A, F-G]
6. This conclusion is also supported by the IMF's
accompanying Balance of Payments Compilation Guide. 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. [Para 43][265-G; 266-E-F]
7. 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
A
B
C
D
E
F
G
H
235
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. [Para 44][266-F-H]
The necessity of the measure
8. Having considered the nature of MTTs, this Court rejects
the appellant's arguments for two reasons. 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.
[Para 47][267-E-H; 268-A-B]
Regulatory Role of the RBI
9. 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. However, the RBI has carefully established the
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
A
B
C
D
E
F
G
H
236
SUPREME COURT REPORTS
[2021] 13 S.C.R.
connection between the use of Indian foreign exchange reserves,
MTTs and the availability of domestic stocks. 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.
[Para 57][279-B-D]
10. Thus, 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. [Para 57][280-E-G]
Conclusion
11. Therefore, this Court finds that the judgment of the
Madhya Pradesh High Court was correct in holding that 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. [Para 58][280H; 281-A]
State Trading Corporation v. Commercial Tax Officer
AIR 1963 SC 1811; Chintaman Rao v. State of Madhya
Pradesh, AIR 1951 SC 118; K S Puttaswamy v. Union
of India (2017) 10 SCC 1 : [2017] 10 SCR 569; K S
Puttaswamy v. Union of India (2019) 1 SCC 1 : [2018]
8 SCR 1; Rustom Cavasji Cooper v. Union of India
(1970) 1 SCC 248 : [1970] 3 SCR 530; Shayara Bano
v. Union of India (2017) 9 SCC 1 : [2017] 9 SCR 797;
A
B
C
D
E
F
G
H
237
Joseph Kuruvilla Vellukunnel v. Reserve Bank of India
AIR 1962 SC 1371 - followed.
Internet and Mobile Association of India v. Reserve
Bank of India (2020) 10 SCC 274 : [2020] 2 SCR 297;
Gujarat Mazdoor Sabha v. State of Gujarat (2020) 10
SCC 459 2020 (10) JT 307 - relied on.
Shri Sitaram Sugar Co. Ltd. v. Union of India (1990) 3
SCC 223 : [1990] 1 SCR 909; Prag Ice & Oil Mills v.
Union of India (1978) 3 SCC 459 : [1978] 3 SCR 293;
P.T.R. Exports (Madras) (P) Ltd. v. Union of India
(1996) 5 SCC 268 : [1996] 2 Suppl. SCR 662; M R F
Ltd. v. Inspector Kerala Government (1998) 8 SCC 227
: [1998] 2 Suppl. SCR 632; M R F Ltd. v. Inspector
Kerala Government (1998) 8 SCC 227 : [1998] 2
Suppl. SCR 632; B P Sharma v. Union of India (2003)
7 SCC 309 : [2003] 2 Suppl. SCR 684; Dwarka Pd. v.
State of Uttar Pradesh, AIR 1954 SC 224; Shree
Meenakshi Mills v. Union of India, AIR 1974 SC 366;
Saghir Ahmad v. State of U.P., (1955) 1 SCR 707; Jalan
Trading Co. v. D M Aney, AIR 1973 SC 233; Indian
Handicrafts Emporium v. Union of India, (2003) 7 SCC
589 : [2003] 3 Suppl. SCR 43; Chintaman Rao v. State
of Madhya Pradesh AIR 1951 SC 118; Narendra
Kumar v. Union of India, AIR 1960 SC 430; Mohd.
Faruk v. State of Madhya Pradesh, (1969) 1 SCC 853
: [1970] 1 SCR 156; Cellular Operators Association of
India v. Telecom Regulatory Authority of India, (2016)
7 SCC 703 : [2016] 9 SCR 1; Internet and Mobile
Association of India v. Reserve Bank of India, (2020)
SCC OnLine SC 275; Om Kumar v. Union of India
(2001) 2 SCC 386 : [2000] 4 Suppl. SCR 693; Modern
Dental College and Research Centre v. State of Madhya
Pradesh (2016) 7 SCC 353 : [2016] 3 SCR 579;
Sukhnandan Saran Dinesh Kumar v. Union of India,
AIR 1982 SC 902; Laxmi Khandsari v. State of Uttar
Pradesh, AIR 1981 SC 860; Peerless General Finance
and Investment Co. Limited v. Reserve Bank of India
(1992) 2 SCC 343 : [1992] 1 SCR 406; R K Garg v.
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
A
B
C
D
E
F
G
H
238
SUPREME COURT REPORTS
[2021] 13 S.C.R.
Union of India, (1981) 4 SCC 675; Balco Employees
Union v. Union of India, (2002) 2 SCC 333 : [1982] 1
SCR 947; Swiss Ribbons (P) Ltd. v. Union of India,
(2019) 4 SCC 17 : [2019] 3 SCR 535; Ebix Singapore
v. Committee of Creditors of Educomp Solutions (P) Ltd.,
(2021) SCC OnLine SC 313 - referred to.
Case Law Reference
[1990] 1 SCR 909
referred to
Para 7(v)
[1978] 3 SCR 293
referred to
Para 7(v)
[1996] 2 Suppl. SCR 662
referred to
Para 7(v)
[1998] 2 Suppl. SCR 632
referred to
Para 12
[2003] 3 Suppl. SCR 43
referred to
Para 12
[1998] 2 Suppl. SCR 632
referred to
Para 13
[2003] 2 Suppl. SCR 684
referred to
Para 14
[1970] 1 SCR 156
referred to
Para 15
[2016] 9 SCR 1
referred to
Para 15
[2017] 10 SCR 569
followed
Para 15
[2000] 4 Suppl. SCR 693
referred to
Para 16
[2016] 3 SCR 579
referred to
Para 17
[2018] 8 SCR 1
followed
Para 18
[1970] 3 SCR 530
followed
Para 25
[2017] 9 SCR 797
followed
Para 26
[1992] 1 SCR 406
referred to
Para 52
[2020] 2 SCR 297
relied on
Para 53
[1982] 1 SCR 947
referred to
Para 55
[2019] 3 SCR 535
referred to
Para 55
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6522
of 2021.
From the Judgment and Order dated 08.10.2020 of the High Court
of Madhya Pradesh, Bench at Indore in Writ Petition No. 7902 of 2020.
A
B
C
D
E
F
G
H
239
Aayush Agarwala for M/s PBA Legal, Adv. for the Appellant.
Vikramjit Banerjee, ASG, Ms. Swarupama Chaturvedi, P. V.
Yogeshwaran, Md. Akhil, Raj Bahadur Yadav, Ramesh Babu M. R.,
Ms. Manisha Singh, Ms. Nisha Sharma, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into sections to facilitate analysis.
They are:
A Factual background
B Submissions
C A Proportionality Analysis
 C.1 Legitimacy
 C.2 Suitability
 C.3 The necessity of the measure
 C.4 Balancing fundamental rights with State aims
 C.4.1 Regulatory Role of the RBI
D Conclusion
A Factual background
1. The appeal arises from a judgment and order dated 8 October
2020 of a Division Bench of the High Court of Madhya Pradesh at its
Bench at Indore. The High Court upheld Clause 2(iii) of the Revised
Guidelines on Merchanting Trade Transactions1 dated 23 January 20202
issued by the first respondent, Reserve Bank of India3, in the exercise of
its power under Section 10(4) and 11(1) of the Foreign Exchange
Management Act 19994.
2. The appellant is the managing director of a firm that
manufactures and trades in pharmaceuticals; herbal and skincare
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
1 "MTT''
2 "2020 MTT Guidelines'' - RBI/2019-20/152: A.P. (DIR Series) Circular No 20
3 "RBI''
4 "FEMA''
A
B
C
D
E
F
G
H
240
SUPREME COURT REPORTS
[2021] 13 S.C.R.
products; and personnel protection equipment products such as masks,
gloves, sanitisers, PPE overalls, and ventilators5. The 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. In accordance with the 2020
MTT Guidelines, the appellant wrote to his authorised bank on 1 May
2020 requesting documents (such as a letter of credit) that were required
to execute the MTT contract. The bank informed the appellant on 4
May 2020 that RBI had denied permission for his MTT contract, on the
basis of Clause 2(iii) of the 2020 MTT Guidelines. Clause 2(iii) is
reproduced below:
"iii. The MTT shall be undertaken for the goods that are permitted
for exports/imports under the prevailing Foreign Trade Policy (FTP)
of India as on the date of shipment. All rules, regulations and
directions applicable to exports (except Export Declaration Form)
and imports (except Bill of Entry) shall be complied with for the
export leg and import leg respectively."
At the relevant time, the export of PPE products had been banned
by the second respondent, the Union Ministry of Commerce and Industry
and the Directorate General of Foreign Trade6, through successive
notifications dated 8 February 2020, 25 February 2020 and 19 March
2020, 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.
3. Upon receiving the communication from his bank, the appellant
wrote an email to the Ministry of Commerce and DGFT on 12 May
2020, 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. Hence, he
requested the Ministry of Commerce and DGFT to issue a notification/
clarification/circular exempting MTT contracts in relation to PPE products
from the requirements of Clause 2(iii). However, the appellant received
no response. The appellant then filed a writ petition7 under Article 226
before the Madhya Pradesh High Court. The writ petition set up a case
that Clause 2(iii) of the 2020 MTT Guidelines is unconstitutional since it
5 Collectively, they are being referred to as "PPE products''
6 "Ministry of Commerce and DGFT''
7 Writ Petition No 7902/2020
A
B
C
D
E
F
G
H
241
violates the appellant's right to carry on business under Article 19(1)(g)
and the right to life and livelihood under Article 21 of the Constitution.
4. In its reply before the Madhya Pradesh High Court, the RBI
stated that the Union of India8 had prohibited the export of PPE products
from India by issuing multiple notifications under Section 3 of the Foreign
Trade (Development & Regulation) Act 19929, through which it amended
the Foreign Trade Policy 2015-202010. Hence, in accordance with Clause
2(iii) of the 2020 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. Further, it was clarified that Clause 2(iii) was of a general nature,
and the RBI had no jurisdiction to exempt products from its application,
since only the UOI determined the nation's FTP.
5. By its judgment dated 8 October 2020, the High Court dismissed
the writ petition. In upholding the constitutionality of Clause 2(iii) of the
2020 MTT Guidelines, the High Court held that: (i) Clause 2(iii) only
prohibits MTTs for goods that cannot be imported/exported into India.
The provision is general in its application and does not specifically prohibit
MTT in PPE products; (ii) 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; (iii) the Ministry of Commerce
and DGFT prohibited the export of PPE products due to the COVID19pandemic, and consequently, MTTs are also prohibited under Clause
2(iii); and (iv) apart from the fact that the goods do not physically enter
Indian territory, an MTT has all the trappings of an import/export
transaction. Further, it involves India's foreign exchange. Hence, its
regulation needs to be in conformity with the FTP set by the UOI.
B Submissions
6. Mr Aayush Agarwala, learned Counsel for the appellant
submitted that:
(i)
Clause 2(iii) of the 2020 MTT Guidelines prohibits MTTs
for goods whose import/export is banned in India, which
results in an absolute prohibition. This violates Articles 14,
19(1)(g) and 21 of the Constitution;
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
8 "UOI''
9 "Foreign Trade Act''
10 "FTP''
A
B
C
D
E
F
G
H
242
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(ii)
The RBI has provided no cogent reason why it has linked
the ban on MTTs completely to India's FTP, instead of
independently deciding it under FEMA, since the objective
while prohibiting goods under the FTP may not be fulfilled
by also prohibiting MTTs. This is true in the present case,
where the export of PPE products was banned to preserve
stocks in India during the COVID-19 pandemic; however,
MTTs in PPE products do not affect domestic stocks
because the goods traded are from outside of India.
Therefore, Clause 2(iii) is manifestly arbitrary and violates
Article 14;
(iii)
There is no entry into or exit of goods from the borders of
India in an MTT and the Indian entity only serves as an
intermediary in a transaction between two foreign countries.
Hence, the appellant's MTT in relation to PPE products
would not affect the quantity of PPE products in India during
the pandemic, and is not a reasonable restriction. Pertinently,
courts should consider the reasonableness of a policy more
carefully when it results in an absolute prohibition;
(iv)
Further, lesser intrusive policies are possible, such as the
following:
a. The RBI can independently decide whether to prohibit
an MTT for each product whose import/export has been
banned under the FTP. This can be done by delinking
the prohibition on MTT with the prohibition under the
FTP;
b. The RBI can prohibit MTTs only for goods whose import
has been prohibited since the lack of import into India
highlights a policy concern in relation to that product.
However, for goods whose export is prohibited, the MTT
can be allowed because it does not reduce the stock of
that product in India. It is submitted that this was also
the intent of RBI's circular dated 24 August 2000 in
relation to MTTs; and
c. Individuals should be allowed to approach the RBI to
seek an exemption for conducting MTTs in relation to
products whose import/export is prohibited under the
A
B
C
D
E
F
G
H
243
FTP. The RBI can then consider each individual product
and decide whether its MTT should be permitted, keeping
in mind the reasons for its prohibition under the FTP.
7. Opposing the above submissions, Mr Ramesh Babu M R,
learned Counsel for the RBI submitted that:
(i)
The appellant cannot challenge Clause 2(iii) of the 2020 MTT
Guidelines without challenging the notifications amending the
FTP to prohibit the export of PPE products. Clause 2(iii) is
general in its application and was introduced on 23 January
2020, while the first notification prohibiting the export of PPE
products was issued by the UOI on 8 February 2020;
(ii)
Clauses similar to Clause 2(iii) of the 2020 MTT Guidelines
have existed in all previous circulars issued by the RBI to
regulate MTTs. These clauses substantially stipulate that
MTTs would only be allowed in respect of products whose
import/export is allowed in India;
(iii) MTTs are analogous to import/export transactions, except
for the fact that the goods never physically enter India. There
is an outflow of foreign exchange during the import leg of
the MTT and an inflow of foreign exchange during the export
leg. Hence, MTTs affect India's foreign reserves, which the
RBI has to manage and harmonise with the UOI's FTP.
Therefore, the RBI cannot permit MTTs in respect of goods
whose import/export has been prohibited by the UOI under
the Foreign Trade Act;
(iv) Export of PPE products was prohibited by the UOI in order
to ensure that adequate stocks are present in India during
the COVID-19 pandemic. Hence, a prohibition of MTTs in
respect of PPE products is also important because when an
Indian entity facilitates the trade of these products to another
nation, it takes away from India's possible stock in the global
market; and
(v) Courts should be wary of interfering in the economic policies
of the State, which should be left to expert bodies. This
proposition is supported by the decisions of this Court in Shri
Sitaram Sugar Co. Ltd. v. Union of India11, Prag Ice &
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
11 (1990) 3 SCC 223
A
B
C
D
E
F
G
H
244
SUPREME COURT REPORTS
[2021] 13 S.C.R.
Oil Mills v. Union of India12 and P.T.R. Exports (Madras)
(P) Ltd. v. Union of India13.
8. Supporting the submissions of the RBI on behalf of the Ministry
of Commerce and DGFT, Mr Vikramjit Banerjee, Additional Solicitor
General14 submitted that:
(i)
The UOI has prohibited the export of PPE products through
a series of notifications issued between 31 January 2020 to
16 May 2020, so as to ensure that there is adequate stock
in India during the COVID-19 pandemic;
(ii)
The appellant cannot be allowed to facilitate a transaction
for PPE products between two foreign countries through
MTTs since it would be against India's national interest.
Given the COVID-19 pandemic, such a restriction is
reasonable;
(iii)
There is no complete prohibition under Clause 2(iii) of the
2020 MTT Guidelines since the appellant is free to conduct
MTTs in respect of goods whose import/export is not
prohibited under India's FTP; and
(iv)
By a notification dated 25 August 2020, the export of PPE
Masks and N-95/FFP 2 Masks or equivalent has been
categorized as "Restricted" (instead of "Prohibited") while
medical coveralls of all classes/categories (including PPE
overalls) are now under the "Free" category.
9. The rival submissions will now be analysed.
C A Proportionality Analysis
10. The appellant is a citizen of India. He is also the Managing
Director of Anzalp Herbal Products Private Limited, a corporate body
which inter alia, engages in MTTs. In State Trading Corporation v.
Commercial Tax Officer15, a nine-judge Bench of this Court has settled
the question that corporations are not considered as "citizens" under the
Constitution. A corporation cannot claim an infringement of rights under
12 (1978) 3 SCC 459
13 (1996) 5 SCC 268
14 "ASG''
15 AIR 1963 SC 1811
A
B
C
D
E
F
G
H
245
Article 19(1)(g), as this fundamental right is only available to citizens
and not to juristic persons. Over the years, shareholders and business
persons have filed petitions in their individual capacity, to allege
infringement of their fundamental right to carry on business or a profession
of their choice16. The appellant argues that the RBI and UOI's prohibition
of MTTs in respect of PPE products infringes his fundamental rights
and freedoms under Articles 14, 19(1)(g) and 21 of the Constitution.
11. The appellant has contended that this Court has been
circumspect of legislative provisions or executive policies that impose a
total prohibition on a citizen's right to conduct business. Since the appellant
is engaged in MTTs which facilitate import and export between two
different countries, he urges that a complete prohibition on MTTs in
relation to PPE products, without a rational distinction of prohibiting their
exports alone, is a constitutionally suspect infringement of his freedom
to conduct his business. In order to test this claim, we will begin by
analysing the precedents of this Court on the ambit of the freedom
envisaged under Article 19(1)(g). The relevant freedoms and restrictions
with respect to trade under the Indian Constitution are as follows:
"19. Protection of certain rights regarding freedom of speech,
etc.-(1) All citizens shall have the right -
[...]
(g) to practise any profession, or to carry on any occupation, trade
or business.
[...]
(6) Nothing in sub-clause (g) of the said clause shall affect the
operation of any existing law in so far as it imposes, or prevent
the State from making any law imposing, in the interests of the
general public, reasonable restrictions on the exercise of the right
conferred by the said sub-clause, and, in particular, nothing in the
said sub-clause shall affect the operation of any existing law in so
far as it relates to, or prevent the State from making any law
relating to,-
(i) the professional or technical qualifications necessary for
practising any profession or carrying on any occupation, trade or
business, or
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
16 M P Jain, Citizenship, in INDIAN CONSTITUTIONAL LAW (7th edn, Lexis Nexis, 2014)
A
B
C
D
E
F
G
H
246
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(ii) the carrying on by the State, or by a corporation owned or
controlled by the State, of any trade, business, industry or service,
whether to the exclusion, complete or partial, of citizens or
otherwise."
12. The text of the Constitution clarifies that the right to carry on
trade or business is subject to reasonable restrictions which are imposed
in the interests of the general public. This Court has propounded several
tests for determining "reasonableness" for the purpose of Article 19(1)(g).
These have ranged from testing restrictions for arbitrariness17,
excessiveness18 and discerning their objective of compliance with the
Directive Principles of State Policy19. In Chintaman Rao v. State of
Madhya Pradesh,20 a Constitution Bench noted the importance of
striking the right balance between social control and individual freedom.
Justice K C Das Gupta articulated the limitation under Article 19(6) in
the following terms:
"6. The phrase "reasonable restriction" connotes that the limitation
imposed on a person in enjoyment of the right should not be
arbitrary or of an excessive nature, beyond what is required in the
interests of the public. The word "reasonable" implies intelligent
care and deliberation, that is, the choice of a course which reason
dictates. Legislation which arbitrarily or excessively invades the
right cannot be said to contain the quality of reasonableness and
unless it strikes a proper balance between the freedom guaranteed
in Article 19(1)(g) and the social control permitted by clause (6)
of Article 19, it must be held to be wanting in that quality."
13. In M R F Ltd. v. Inspector Kerala Government,21 a two
judge Bench of this Court consolidated the body of precedent of this
Court on Article 19(1)(g). Justice S Saghir Ahmed noted the following
principles that govern the restrictions under Article 19(6):
17 Dwarka Pd. v. State of Uttar Pradesh, AIR 1954 SC 224; Shree Meenakshi Mills
v. Union of India, AIR 1974 SC 366
18 Chintaman Rao v. State of Madhya Pradesh, AIR 1951 SC 118
19 Saghir Ahmad v. State of U.P., (1955) 1 SCR 707; Jalan Trading Co. v. D M Aney,
AIR 1973 SC 233; M R F Ltd. v. Inspector Kerala Government, (1998) 8 SCC 227;
Indian Handicrafts Emporium v. Union of India, (2003) 7 SCC 589
20 AIR 1951 SC 118
21 (1998) 8 SCC 227
A
B
C
D
E
F
G
H
247
"13. [...]
(1) While considering the reasonableness of the restrictions, the
court has to keep in mind the Directive Principles of State Policy.
(2) Restrictions must not be arbitrary or of an excessive nature so
as to go beyond the requirement of the interest of the general
public.
(3) In order to judge the reasonableness of the restrictions, no
abstract or general pattern or a fixed principle can be laid down
so as to be of universal application and the same will vary from
case to case as also with regard to changing conditions, values of
human life, social philosophy of the Constitution, prevailing
conditions and the surrounding circumstances.
(4) A just balance has to be struck between the restrictions imposed
and the social control envisaged by clause (6) of Article 19.
(5) Prevailing social values as also social needs which are intended
to be satisfied by restrictions have to be borne in mind. (See:
State of U.P. v. Kaushailiya [AIR 1964 SC 416 : (1964) 4 SCR
1002] .)
(6) There must be a direct and proximate nexus or a reasonable
connection between the restrictions imposed and the object sought
to be achieved. If there is a direct nexus between the restrictions
and the object of the Act, then a strong presumption in favour of
the constitutionality of the Act will naturally arise. (See:
Kavalappara Kottarathil Kochuni v. States of Madras and Kerala
[AIR 1960 SC 1080 : (1960) 3 SCR 887] ; O.K. Ghosh v. E.X.
Joseph [AIR 1963 SC 812 : 1963 Supp (1) SCR 789 : (1962) 2
LLJ 615] .)"
14. This Court has also consistently held that restrictions on the
freedom to carry on trade and business can take the form of a complete
prohibition22. However, in B P Sharma v. Union of India,23 a two judge
Bench of this Court has espoused a higher threshold for imposition of a
prohibitive restriction. A legitimate object and prejudice to the general
public by non-imposition of such prohibition has to be demonstrated by
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
22 Narendra Kumar v. Union of India, AIR 1960 SC 430
23 (2003) 7 SCC 309
A
B
C
D
E
F
G
H
248
SUPREME COURT REPORTS
[2021] 13 S.C.R.
the State, to discharge its burden of demonstrating reasonableness under
Article 19(6). Justice Brijesh Kumar held:
"15. The freedom under Article 19(1)(g) can also be completely
curtailed in certain circumstances e.g. where the profession chosen
is so inherently pernicious that nobody can be considered to have
a fundamental right to carry on such business, trade, calling or
profession like gambling, betting or dealing in intoxicants or an
activity injurious to public health and morals. It may be useful to
refer to a few decisions of this Court on the point at this stage viz.
in Saghir Ahmad v. State of U.P. [AIR 1954 SC 728 : (1955) 1
SCR 707] and J.K. Industries Ltd. v. Chief Inspector of Factories
and Boilers [(1996) 6 SCC 665]. The main purpose of restricting
the exercise of the right is to strike a balance between individual
freedom and social control. The freedom, however, as guaranteed
under Article 19(1)(g) is valuable and cannot be violated on grounds
which are not established to be in public interest or just on the
basis that it is permissible to do so. For placing a complete
prohibition on any professional activity, there must exist
some strong reason for the same with a view to attain some
legitimate object and in case of non-imposition of such
prohibition, it may result in jeopardizing or seriously
affecting the interest of the people in general. If it is not
so, it would not be a reasonable restriction if placed on
exercise of the right guaranteed under Article 19(1)(g). The
phrase "in the interest of the general public" has come to be
considered in several decisions and it has been held that it would
comprise within its ambit interests like public health and morals...."
(emphasis supplied)
15. Various principles have been espoused by this Court to bring
about a balance between the perceived interest of the state of social
control over the economy, with the rights and freedoms of individuals.
The appellant has cited various decisions to argue for heightened scrutiny
of legislative or administrative action which places an absolute prohibition
on an individual's right to conduct trade or business24. The judicial
24 Mohd. Faruk v. State of Madhya Pradesh, 1969 (1) SCC 853; Cellular Operators
Association of India v. Telecom Regulatory Authority of India, (2016) 7 SCC 703;
Internet and Mobile Association of India v. Reserve Bank of India, 2020 SCC
OnLine SC 275
A
B
C
D
E
F
G
H
249
evolution of a four-pronged analysis of proportionality displaces the
varying standards that were prescribed to determine "reasonableness"
under Article 19(6). The qualitative nature of a right and the corresponding
scrutiny of its violation cannot be a sole function of the degree of
restriction. Every violation of rights, irrespective of the degree of the
infraction, must be evaluated through a uniform principle that promotes
a culture of justification. The decision of a nine-judge Bench of this
Court in K S Puttaswamy v. Union of India25 ("K S Puttaswamy
(9J)") prescribed a proportionality analysis for determining violations of
fundamental rights under Part III. A proportionality analysis can
adequately consider the constitutionality of prohibitive measures on
commercial activities. Therefore, we will structure the judgment on an
analysis of the proportionality of RBI's decision to prohibit MTTs in
PPE products, in order to determine its constitutionality.
16. An analysis of legitimate social control for the purpose of
Article 19(6) has been streamlined by this Court through the lens of
proportionality. A two-judge Bench of this Court in Om Kumar v. Union
of India26 introduced the test of proportionality for determining the
reasonableness of restrictions on freedoms guaranteed under Article
19(1). Justice M Jagannadha Rao traced the historical application of the
principle in this Court's precedent and in a comparative context. The
judgment defined the concept in the following terms:
"28.