Madhya Pradesh HC upholds restrictions on Merchanting Trade Transactions as per Import, Export policy

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Recently, the Indore bench of Madhya Pradesh HC comprising of Justice SC sharma and Justice Shailendra Shukla had passed the order with respect to MTT contract entered by the petitioner for supply of PPE kits from China to USA.

The 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 those particular products does not arise.

In its plea, the petitioner averted that prohibition on export of PPE kit amid the Covid-19 had imposes an automatic prohibition on execution of his MTT Contract. And therefore, amounts to interference with Right to trade under Article 19(1) (g) of the Constitution.

The arguments made by petitioner imposed by RBI is on total prohibition which violates Petitioner’s fundamental rights guaranteed under Section 19(1) (g) and 21 of the Indian Constitution, this Court has observed the Supreme Court’s verdict in the cryptocurrency case is ‘distinguishable on facts’.

The bench has observed that, the clause restricting MTT transactions of goods which are not permitted to be Imported/Exported under the prevailing foreign trade policy is in existence since 2000. It was also held that this clause cannot be struck down because, as per averments made by RBI, MTT are analogous to import/export.

The Court observed that “there is no absolute ban imposed by RBI in respect of the Merchanting Trade Transaction Contracts.”

Further the Court has remarked that if the petitioner’s analogy is accepted and prevailing FTP is not made applicable to MTT, then by that logic, RBI will have to grant permission for MTT in respect of “Sniper Riffles” from USA to India and is supplying to Pakistan.

However, the bench has declined the petition for the supply of PPE kits from China to the US. And has held that, “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. “