By This Logic Supply Of Sniper Riffles From USA To Pakistan Will Have To Be Permitted By RBI: Madhya Pradesh HC Upholds Restrictions On Merchanting Trade Transactions As Per Import/ Export Policy

The Indore Bench of the Madhya Pradesh High Court has held that once import/ export of a particular product is barred by the Government, the question of permitting 'Merchanting Trade Transactions' (MTT) in respect of that particular products does not arise. The order was passed recently with respect to MTT contract entered by the Petitioner for supply of PPE Kits from China to USA. The Petitioner had submitted that prohibition on export of PPE kit amid the Coronavirus had imposed an automatic prohibition on execution of his MTT contract. He had submitted that under the MMT contract, the goods in question shall neither enter, nor exit, India and therefore prohibition on the same is unwarranted and amounts to interreference with Right to Trade under Article 19(1)(g) of the Constitution. Declining his plea for supply of PPE kits from China to US however, the Bench comprising of Justice SC Sharma and Justice Shailendra Shukla held, "Even though the goods are not coming to India at any point of time under the Merchanting Trade Transactions, only those goods which are permitted for export or for import are eligible for Merchanting Trade Transactions. The circular issued by the Reserve Bank of India is in no way violating the petitioner's right guaranteed under Article 19(1)(g) of the Constitution of India." Background Under MTT, an Indian Citizen facilitates the export of any goods or material from a Company or individual of an export country (other than India) and then import / supply of the said goods to a Company in another country, which is also other than India. Thus, in short their contention is that goods are neither manufactured in India nor imported to India at any point of time, however, the profit comes to India in various currencies. The Petitioner had executed a MTT contract for supply of PPE Kits from China to USA. He was aggrieved by Clause 2(iii) contained in Merchanting Trade Transactions regulations dated 23/01/2020. This clause permits MTT transactions of goods only which are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment. Thus, when the Central Government imposed a ban on export of PPE Kits on account of shortage in the country, there was an automatic prohibition on the MTT contract executed by the Petitioner. Petitioner's Arguments Seeking permission o supply PPE kits from China to USA, the Petitioner had submitted: 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 of India.MTT contracts in PPE products such as the present one does not affect the stock or availability of PPE products within India and it does not fall within the prohibition on export of PPE products imposed by the Respondents. It was also argued that the prohibition imposed by RBI is a total prohibition which violates petitioner's fundamental rights guaranteed under Section 19(1)(g) and 21 of the Constitution of India and therefore, Clause 2(iii) deserves to be struck down by this Court. Reliance on Internet & Mobile Association of India v. RBI, 2020 SCC OnLine SC 275, whereby the Top Court quashed the total prohibition of virtual currencies. Nevertheless, the Petitioner submitted that the latest briefings of the Central Government fairly informs that adequate quantity of PPE products is presently available across India and therefore, in light of the fact that the object has been substantially achieved, further restrictions on any trade activities relating to PPE would be disproportionate in nature for want of requirements. RBI's Arguments The RBI had argued that in times of global shortage, developed countries have far greater financial clout than developing countries to draw scarce medical supplies to themselves, since they can afford to pay higher prices for them. Thus, prohibited export of lifesaving equipment such as Ventilators, PPE kits and Gloves from India, is in larger public interest. It was further submitted: It will be wholly inappropriate and contrary to the national interest for Union of India to permit India's foreign exchange reserve to be engaged in enabling Indian entities, through Merchanting Trade Transactions, to preferentially divert lifesaving supplies to overseas countries rather than to India, merely for higher profitsMerchanting 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.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 ...

By This Logic Supply Of Sniper Riffles From USA To Pakistan Will Have To Be Permitted By RBI: Madhya Pradesh HC Upholds Restrictions On Merchanting Trade Transactions As Per Import/ Export Policy

Akshita Saxena

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