Holding

Clause 2(iii) of the 2020 MTT Guidelines is a proportionate, legitimate restriction and does not violate Articles 14, 19(1)(g) or 21 of the Constitution.

Summary

The appellant, a managing director of a pharmaceutical firm, sought to execute an international Merchanting Trade Transaction (MTT) for PPE products, but the Reserve Bank of India (RBI) denied permission under Clause 2(iii) of the 2020 MTT Guidelines because the Indian government had banned PPE exports during the COVID‑19 pandemic. The appellant challenged the clause as violative of Articles 14, 19(1)(g) and 21 of the Constitution. The Supreme Court applied a four‑pronged proportionality test—legitimacy, suitability, necessity, and balancing—to assess whether the RBI’s restriction was a reasonable means to achieve the legitimate aim of ensuring adequate domestic PPE supplies. It found that the ban on MTTs was a proportionate and necessary measure to prevent hoarding and preserve foreign exchange reserves, aligning with the Union’s export prohibitions. Consequently, the Court upheld the High Court’s decision, holding that Clause 2(iii) is constitutionally valid and dismissed the appeal.

Issues considered

The constitutionality of Clause 2(iii) of the 2020 Merchanting Trade Transactions Guidelines under Articles 14, 19(1)(g) and 21.
Whether the RBI’s prohibition of MTTs for PPE products is a proportionate restriction in furtherance of a legitimate state interest.
Whether the measure is suitable, necessary, and balanced against the appellant’s fundamental rights.

Legislation cited

Disaster Management Act, 2005
Foreign Exchange Management Act, 1999s. 10(4), s. 11(1)
Foreign Trade (Development & Regulation) Act, 1999s. 3(2)
Reserve Bank of India Act, 1934s. 20, s. 21(1), s. 22(1), s. 3(1), s. 38

Subjects

Foreign Exchange Management ActMerchanting Trade TransactionsProportionality analysisFundamental rightsArticle 14Article 19(1)(g)Article 21COVID‑19 pandemicPPE export banReserve Bank of IndiaForeign Trade PolicyRegulatory deference

Judgment

[2021] 13 S.C.R.231 231

AKSHAY N PATEL A
v.
RESERVE BANK OF INDIA & ANR.
(Civil Appeal No. 6522 of 2021)
DECEMBER 06, 2021 B
[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
C
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 D
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
E
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 F
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
G
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 H
231
232 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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,
B
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
C 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
D to conduct trade or business. The judicial 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
E 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
F 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
G 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
H measure in furtherance of a legitimate aim?; (ii) Is the measure
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 233

suitable for achieving such an aim?; (iii) Is the measure necessary A
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. B
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 C
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 D
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 E
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 F
constitutional right of freedom to conduct business. [Paras
29][258-E-H; 259-A]
Suitability
4. The RBI is responsible for issuing guidelines to G
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 H
234 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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
B
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
C 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][262-
E-H; 263-A, D]
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,
E 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
F 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
G 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
H
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 235

their import/export under the FTP. As noted earlier, the appellant A
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 B
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 C
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 D
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 E
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. F
[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 G
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
H
236 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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
B
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
C 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
D 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
E 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)
F passes muster under Articles 14, 19(1)(g) and 21. [Para 58][280-
H; 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
G 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;

H
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 237

Joseph Kuruvilla Vellukunnel v. Reserve Bank of India A
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. B
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 C
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 D
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 E
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 F
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; G
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.
H
238 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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.
B
Case Law Reference
[1990] 1 SCR 909 referred to Para 7(v)
[1978] 3 SCR 293 referred to Para 7(v)

C [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
D [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
E [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
F [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
G
[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
H of Madhya Pradesh, Bench at Indore in Writ Petition No. 7902 of 2020.
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 239

Aayush Agarwala for M/s PBA Legal, Adv. for the Appellant. A
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
B
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into sections to facilitate analysis.
They are:
A Factual background
C
B Submissions
C A Proportionality Analysis
C.1 Legitimacy
C.2 Suitability
D
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
E

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 F
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 G
manufactures and trades in pharmaceuticals; herbal and skincare
1
“MTT’’
2
“2020 MTT Guidelines’’ - RBI/2019-20/152: A.P. (DIR Series) Circular No 20
3
“RBI’’
4
“FEMA’’ H
240 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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
B
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:
C “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
D 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
E 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
F 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
G 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
H Writ Petition No 7902/2020
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 241
[DR. DHANANJAYA Y CHANDRACHUD, J.]

violates the appellant’s right to carry on business under Article 19(1)(g) A
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 B
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, C
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. D
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 COVID- E
19pandemic, 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.
F
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 G
results in an absolute prohibition. This violates Articles 14,
19(1)(g) and 21 of the Constitution;
8
“UOI’’
9
“Foreign Trade Act’’
10
“FTP’’
H
242 SUPREME COURT REPORTS [2021] 13 S.C.R.

A (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
B
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;
C (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
D 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:
E 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;
F 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
G 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
H
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 243
[DR. DHANANJAYA Y CHANDRACHUD, J.]

FTP. The RBI can then consider each individual product A
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 B
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; C
(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; D
(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 E
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 F
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 G
(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 &
11
(1990) 3 SCC 223 H
244 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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:
B (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
C 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
D 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
E 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.

F
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.
G 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
H AIR 1963 SC 1811
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 245
[DR. DHANANJAYA Y CHANDRACHUD, J.]

Article 19(1)(g), as this fundamental right is only available to citizens A
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
B
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 C
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 D
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 E
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
F
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,— G
(i) the professional or technical qualifications necessary for
practising any profession or carrying on any occupation, trade or
business, or

16
M P Jain, Citizenship, in INDIAN CONSTITUTIONAL LAW (7th edn, Lexis Nexis, 2014) H
246 SUPREME COURT REPORTS [2021] 13 S.C.R.

A (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
B 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 arbitrariness 17,
excessiveness18 and discerning their objective of compliance with the
C 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:

D “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
E 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
F 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
G 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
H (1998) 8 SCC 227
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 247
[DR. DHANANJAYA Y CHANDRACHUD, J.]

“13. […] A
(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 B
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 C
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 D
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 E
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. F
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 G
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
22
Narendra Kumar v. Union of India, AIR 1960 SC 430
23
(2003) 7 SCC 309 H
248 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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
B 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
C
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
D 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
E
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….”
F (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
G 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
H OnLine SC 275
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 249
[DR. DHANANJAYA Y CHANDRACHUD, J.]

evolution of a four-pronged analysis of proportionality displaces the A
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
B
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 C
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 D
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:
E
“28. By “proportionality”, we mean the question whether, while
regulating exercise of fundamental rights, the appropriate or least-
restrictive choice of measures has been made by the legislature
or the administrator so as to achieve the object of the legislation
or the purpose of the administrative order, as the case may be.
Under the principle, the court will see that the legislature and the F
administrative authority “maintain a proper balance between the
adverse effects which the legislation or the administrative order
may have on the rights, liberties or interests of persons keeping in
mind the purpose which they were intended to serve”. The
legislature and the administrative authority are, however, given an G
area of discretion or a range of choices but as to whether the
choice made infringes the rights excessively or not is for the court.
That is what is meant by proportionality.”

25
(2017) 10 SCC 1, para 325
26
(2001) 2 SCC 386 H
250 SUPREME COURT REPORTS [2021] 13 S.C.R.

A The test was made applicable to testing the validity of legislation
as well as administrative action:
“53. Now under Articles 19(2) to (6), restrictions on fundamental
freedoms can be imposed only by legislation. In cases where such
legislation is made and the restrictions are reasonable yet, if the
B statute concerned permitted the administrative authorities to
exercise power or discretion while imposing restrictions in individual
situations, question frequently arises whether a wrong choice is
made by the administrator for imposing restriction or whether the
administrator has not properly balanced the fundamental right and
the need for the restriction or whether he has imposed the least of
C the restrictions or the reasonable quantum of restriction etc. In
such cases, the administrative action in our country, in our view,
has to be tested on the principle of “proportionality”, just as it is
done in the case of the main legislation. This, in fact, is being done
by our courts.”
D 17. A Constitution Bench, in Modern Dental College and
Research Centre v. State of Madhya Pradesh27 (“Modern Dental
College”), validated the test of proportionality for determining the
reasonableness of a restriction under Article 19(6). Justice A K Sikri
accepted the Canadian Supreme Court’s analysis of the doctrine of
E proportionality and held it to be applicable to constitutional rights in India.
The Court noted:
“63. In this direction, the next question that arises is as to what
criteria is to be adopted for a proper balance between the two
facets viz. the rights and limitations imposed upon it by a statute.
F Here comes the concept of “proportionality”, which is a proper
criterion. To put it pithily, when a law limits a constitutional
right, such a limitation is constitutional if it is proportional.
The law imposing restrictions will be treated as proportional
if it is meant to achieve a proper purpose, and if the
measures taken to achieve such a purpose are rationally
G connected to the purpose, and such measures are
necessary. This essence of doctrine of proportionality is beautifully
captured by Dickson, C.J. of Canada in R. v. Oakes [R.v. Oakes,
(1986) 1 SCR 103 (Can SC)] , in the following words (at p. 138):

H 27
(2016) 7 SCC 353
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 251
[DR. DHANANJAYA Y CHANDRACHUD, J.]

“To establish that a limit is reasonable and demonstrably justified A
in a free and democratic society, two central criteria must be
satisfied. First, the objective, which the measures, responsible for
a limit on a Charter right or freedom are designed to serve, must
be “of” sufficient importance to warrant overriding a constitutional
protected right or freedom … Second … the party invoking Section
B
1 must show that the means chosen are reasonable and
demonstrably justified. This involves “a form of proportionality
test…” Although the nature of the proportionality test will vary
depending on the circumstances, in each case courts will be
required to balance the interests of society with those of individuals
and groups. There are, in my view, three important components C
of a proportionality test. First, the measures adopted must be …
rationally connected to the objective. Second, the means … should
impair “as little as possible” the right or freedom in question …
Third, there must be a proportionality between the effects of the
measures which are responsible for limiting the Charter right or
D
freedom, and the objective which has been identified as of
“sufficient importance”. The more severe the deleterious effects
of a measure, the more important the objective must be if the
measure is to be reasonable and demonstrably justified in a free
and democratic society.”
64. The exercise which, therefore, is to be taken is to find E
out as to whether the limitation of constitutional rights is
for a purpose that is reasonable and necessary in a
democratic society and such an exercise involves the
weighing up of competitive values, and ultimately an
assessment based on proportionality i.e. balancing of F
different interests.”
(emphasis supplied)
18. The decision in K S Puttaswamy (9J)28 (supra) introduced
the proportionality standard in determining violations of fundamental rights,
particularly the right to privacy. This doctrine was affirmed in the G
judgments of five out of the nine judges on the Bench. Subsequently, a
Constitution Bench in K S Puttaswamy v. Union of India29 (“Aadhar
(5J)”) fleshed out the contours of a proportionality analysis and applied
28
Para 325
29
(2019) 1 SCC 1 H
252 SUPREME COURT REPORTS [2021] 13 S.C.R.

A it to determine the constitutionality of the Aadhar Scheme and the Aadhar
Act 2016. Justice A K Sikri conducted a comparative analysis of the
types of proportionality analysis globally and elucidated a four-pronged
approach that could be suitable for the Indian Constitution. This test was
laid down in the following terms:
B “319. …This discussion brings out that following four sub-
components of proportionality need to be satisfied:
319.1. A measure restricting a right must have a legitimate goal
(legitimate goal stage).
319.2. It must be a suitable means of furthering this goal (suitability
C or rational connection stage).
319.3. There must not be any less restrictive but equally effective
alternative (necessity stage).
319.4. The measure must not have a disproportionate impact on
D the right holder (balancing stage).”
19. This Court has thus propounded a four-pronged test of
proportionality. This can now be utilised to determine the constitutionality
of Clause 2(iii) of the 2020 MTT Guidelines.
20. Before our analysis proceeds along the above direction, it is
E important to note that the appellant has challenged the constitutionality
of Clause 2(iii) of the 2020 MTT Guidelines by alleging a violation of his
rights under Articles 14, 19(1)(g) and 21. Hence, this Court has to
determine if the RBI’s restriction to prohibit MTTs in PPE products is
restrictive of the appellant’s right to equality under Article 14 on the
ground that it is arbitrary, whether it is a reasonable restriction on the
F
appellant’s freedom to conduct trade under Articles 19(1)(g) read with
Article 19(6), and if it violates the appellant’s liberty and right to livelihood
under Article 21.
21. Allegations involving a violation of each of these rights are
often considered independently and within the framework of their own
G prescribed limitation by the precedents of this Court. However, the
substance of the enquiry behind each of the limitations under these
Articles is similar to a proportionality analysis. In essence, the rights’
limitation is considered justified if it pursues a legitimate aim, has a rational
nexus to the objective and there is a balance between the limitation of
H the right and the public interest which the rights-limitation aims to achieve.
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 253
[DR. DHANANJAYA Y CHANDRACHUD, J.]

This analysis has been considered similar to a proportionality inquiry, A
with the “necessity” prong being considered missing30.
22. Some academic commentators have suggested that the Courts
can adopt the proportionality analysis, even when considering rights with
different limitations. They state this for three reasons: (i) litigation of
rights can often be open-ended, which risks the analysis becoming B
inconsistent across different cases. Hence, a formal balancing procedure,
such as the proportionality analysis, is useful in providing a structure to
the arguments; (ii) in multiple jurisdictions, the provision of the right
itself contains a limitation clause (such as Article 19 in the Indian
Constitution) and even then, the courts have opted to use the
proportionality analysis. In such circumstances, the courts use the C
proportionality analysis to test the application of the limitation clause;
and (iii) the proportionality analysis is particularly helpful when the dispute
between a right and its limitation is recast as one between a right and a
measure which limits that right but only to promote a different right31.
23. On the other hand, in an illuminating article in the Yale Law D
Journal, Professor Vicki Jackson has pointed out that there are structural
differences between various rights, due to which a proportionality analysis
may not be suitable for some of them. While Professor Jackson agrees
with the principle of balancing that underlies proportionality as a principle,
she issues a note of caution that the protection of certain rights may be E
better suited to categorical rules. Even so, Professor Jackson supports
the use of proportionality analysis wherever possible and notes its benefits
in the following passage32:
“Using proportionality to define violations, of course, does not
dictate remedies or exclude definitions of rights based on separate F
deontological or historical questions. However, greater use of
proportionality, as a principle and as a structured form of review,
has several potential benefits. It could enhance judicial reasoning
by clarifying justifications for limitations on freedoms.
Proportionality might also improve the outcomes of adjudication
G
30
Aparna Chandra, “Proportionality in India: A Bridge to Nowhere” (2020) 3(2)
University of Oxford Human Rights Hub Journal 55
31
Alec Stone Sweet and Jud Mathews, “Proportionality Balancing and Global
Constitutionalism” (2008-2009) 47 Columbia Journal of Transnational Law 72
32
Vicki C Jackson, “Constitutional Law in an Age of Proportionality” (2015) 124(8)
Yale Law Journal 3094 H
254 SUPREME COURT REPORTS [2021] 13 S.C.R.

A by bringing…constitutional law closer to…conceptions of justice,
in ways consistent with the demands of effective government.
Finally, proportionality may be democracy-enhancing, both in
providing a shared discourse of justification for action clamed to
limit rights and in providing more sensitivity to serious process-
deficiencies reflecting entrenched biases against particular
B
groups.”
24. Adopting the proportionality analysis not only provides a formal
structure through which abstract rights litigations can be analysed, but it
also (when applied properly) has the potential to improve the quality of
judicial reasoning while protecting individual rights. As noted in Aadhar
C (5J) (supra), the use of proportionality analysis reflects the shift from a
culture of authority to a culture of justification33 where State action is
best held accountable for its violation of fundamental rights. Justice Albie
Sachs, a judge of the Constitutional Court of South Africa, in his memoir
The Strange Alchemy of Life and Law34, also described this shift from
D a culture of authority to a culture of justification in South Africa with the
introduction of their Constitution:
“The negotiated revolution which saw South Africa move from
being an authoritarian, racist state to becoming a constitutional
democracy led Professor Etienne Mureinik to make a memorable
E statement as far as the character of legal adjudication was
concerned. He pointed out that we were crossing a bridge
from a culture of authority to a culture of justification…The
implications for the judicial function turned out to be enormous.
And it was our Court that was made responsible for guiding the
legal community to embrace and internalize the necessary changes.
F Much more was involved than simply making a technical shift
from what the lawyers call a literalist to a purposive approach to
interpretation. The Constitution brought about a seachange in the
very nature of the judicial function…[It] necessitated moving
beyond an approach based on the application of purportedly
G inexorable rules towards accepting the duty in most matters
for the judges to exercise constitutionally-controlled
discretion. The transformation involved a journey from
preoccupation with classification and strict adherence to

33
Para 1276
H 34
Albie Sachs, The Strange Alchemy of Life and Law (Oxford University Press, 2009)
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 255
[DR. DHANANJAYA Y CHANDRACHUD, J.]

formal rules to focussing on principled modes of weighing A
up the competing interests as triggered by the facts of the
case and assessed in the light of the values of an open and
democratic society…”
(emphasis supplied)
Therefore, this Court must unhesitatingly use the proportionality B
analysis while assessing the violation of the appellant’s rights under
Articles 14, 19(1)(g) and 21.
25. The present case poses another issue, which is whether an
integrated proportionality analysis can be undertaken for assessing the
violation of all three rights. It is a settled principle that fundamental rights C
in Part III are not understood in silos, but as an inter-related enunciation
of rights and freedoms that uphold the basic rubric of human rights. An
eleven-judge Bench of this Court in Rustom Cavasji Cooper v. Union
of India35, speaking through Justice J C Shah, had observed:
“52…it is necessary to bear in mind the enunciation of the D
guarantee of fundamental rights which has taken different forms.
In some cases it is an express declaration of a guaranteed right:
Articles 29(1), 30(1), 26, 25 and 32; in others to ensure protection
of individual rights they take specific forms of restrictions on State
action — legislative or executive — Articles 14, 15, 16, 20, 21, E
22(1), 27 and 28; in some others, it takes the form of a positive
declaration and simultaneously enunciates the restriction thereon:
Articles 19(1) and 19(2) to (6); in some cases, it arises as an
implication from the delimitation of the authority of the State, e.g.
Articles 31(1) and 31(2); in still others, it takes the form of a
general prohibition against the State as well as others: Articles 17, F
23 and 24. The enunciation of rights either express or by
implication does not follow a uniform pattern. But one
thread runs through them: they seek to protect the rights
of the individual or groups of individuals against
infringement of those rights within specific limits. Part III G
of the Constitution weaves a pattern of guarantees on the
texture of basic human rights. The guarantees delimit the
protection of those rights in their allotted fields: they do
not attempt to enunciate distinct rights.”
35
(1970) 1 SCC 248
(emphasis supplied)
H
256 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 26. Conceptualising constitutional rights is incomplete without
analysing their corresponding limitations. This Court has also noticed
that an underlying thread of reasonableness defines fundamental rights
in Part III of the Constitution. A Constitution Bench in Shayara Bano v.
Union of India36 disavowed the view that challenges under every Article
must strictly be considered in a disjoint, water-tight fashion. Justice Kurian
B
Joseph had observed:
84. The second reason given is that a challenge under Article
14 has to be viewed separately from a challenge under
Article 19, which is a reiteration of the point of view of A.K.
Gopalan v. State of Madras [A.K. Gopalan v. State of
C Madras, 1950 SCR 88 : AIR 1950 SC 27 : (1950) 51 Cri LJ
1383] that fundamental rights must be seen in watertight
compartments. We have seen how this view was upset by
an eleven-Judge Bench of this Court in Rustom Cavasjee
Cooper v. Union of India[Rustom Cavasjee Cooper v. Union
D of India, (1970) 1 SCC 248] and followed in Maneka Gandhi
[Maneka Gandhi v. Union of India, (1978) 1 SCC 248].
Arbitrariness in legislation is very much a facet of unreasonableness
in Articles 19(2) to (6), as has been laid down in several judgments
of this Court, some of which are referred to in Om Kumar [Om
Kumar v. Union of India, (2001) 2 SCC 386 : 2001 SCC (L&S)
E 1039] and, therefore, there is no reason why arbitrariness cannot
be used in the aforesaid sense to strike down legislation under
Article 14 as well.
[…]

F 87. The thread of reasonableness runs through the entire
fundamental rights chapter. What is manifestly arbitrary is
obviously unreasonable and being contrary to the rule of
law, would violate Article 14. Further, there is an apparent
contradiction in the three-Judge Bench decision
in McDowell [State of A.P. v. McDowell and Co., (1996) 3 SCC
G 709] when it is said that a constitutional challenge can
succeed on the ground that a law is “disproportionate,
excessive or unreasonable”, yet such challenge would fail
on the very ground of the law being “unreasonable,
unnecessary or unwarranted”. The arbitrariness doctrine
36
H (2017) 9 SCC 1
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 257
[DR. DHANANJAYA Y CHANDRACHUD, J.]

when applied to legislation obviously would not involve the A
latter challenge but would only involve a law being
disproportionate, excessive or otherwise being manifestly
unreasonable. All the aforesaid grounds, therefore, do not
seek to differentiate between State action in its various
forms, all of which are interdicted if they fall foul of the
B
fundamental rights guaranteed to persons and citizens in
Part III of the Constitution.”
(emphasis supplied)
27. The Constitution Bench in Aadhar (5J) (supra) also undertook
an integrated proportionality analysis to determine the proportionality of C
the State’s interference in the rights to privacy, dignity, choice and access
to basic entitlements 37. Hence, the Court can adopt an integrated
proportionality analysis where the limitation on each of the rights is
common and affects them in a similar way. In the present case, the
limitation (i.e., Clause 2(iii) of the 2020 MTT Guidelines) is what affects
the appellant’s rights under Articles 14, 19(1)(g) and 21. Further, the D
appellant has submitted that the limitation is arbitrary, not a reasonable
restriction and violative of his liberty because the RBI has, without
application of mind, linked the prohibition on import/export of a product
to the prohibition of MTTs in relation to that product. It is thus clear that
the appellant’s submissions for challenging the constitutionality of Clause E
2(iii) rest on similar grounds, and hence an integrated proportionality
analysis can be adopted. However, this Court must issue a note of caution
– while an integrated proportionality analysis has been adopted for
assessing the limitation on rights (under Articles 14, 19(1)(g) and 21) in
this case, it may not be true for all cases where such limitations occur
because the alleged violation of rights may be characteristically different F
or the alleged limitation may affect the rights in different ways.
28. The appellant has submitted that the precedents of this Court
indicate that once the citizen can demonstrate that the restriction directly
or proximately interferes with the exercise of their freedom of trade or
to carry on a business, it is the State’s burden to demonstrate the G
reasonableness of the restriction and that it is in the interest of the general
public38. The authority of the RBI in issuing the impugned notification is
37
Para 1277
38
Sukhnandan Saran Dinesh Kumar v. Union of India, AIR 1982 SC 902; Laxmi
Khandsari v. State of Uttar Pradesh, AIR 1981 SC 860 H
258 SUPREME COURT REPORTS [2021] 13 S.C.R.

A not in challenge. Additionally, the legitimacy of the aim – of ensuring
adequate domestic supplies of PPE products – is also not in challenge.
The appellant assails the suitability of the measure restricting MTTs in
ensuring domestic supplies and for being overbroad in its ambit, since an
Indian entity acting as an intermediary in an MTT between two different
countries does not impact the availability of PPE products in India. Thus,
B
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?;
C
(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?
D

C.1 Legitimacy
29. This prong of the test entails an evaluation of the legitimacy of
an aim that purportedly violates a fundamental right. The measure must
E 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)(supra)
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 freedom39. In this case,
the ban on exports, imports and MTTs of PPE products is to ensure the
F
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
G health as a primary duty under Article 47. 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
39
H Aadhar (5J) (supra), paras 321-322
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 259
[DR. DHANANJAYA Y CHANDRACHUD, J.]

availability of PPE products, considering the ongoing pandemic, is A
legitimate. Accordingly, we hold 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.

C.2 Suitability B

30. In examining the aim of ensuring adequate supplies in India,
we will now evaluate the suitability of the prohibition of MTTs in relation
to PPE products. This would entail an analysis of whether the proposed
measure can further the stated objective. To understand whether the
prohibition of MTTs in relation to PPE products was suitable, we must C
first analyse the framework under which the RBI regulates MTTs in
India.
31. MTTs are regulated by the RBI under FEMA, which came
into force on 1 June 2000. Under FEMA, it is the duty of the RBI to
manage, regulate and supervise the foreign exchange in India. Section D
340 of FEMA provides, inter alia, that no person can deal in foreign
exchange without the permission of the RBI. In accordance with Section
10(1)41, the RBI can grant permission to an entity to become an “authorized
40
3. Dealing in foreign exchange, etc.—Save as otherwise provided in this Act, rules or
regulations made thereunder, or with the general or special permission of the Reserve
Bank, no person shall—(a) deal in or transfer any foreign exchange or foreign security E
to any person not being an authorised person;
(b) make any payment to or for the credit of any person resident outside India in any
manner;
(c) receive otherwise through an authorised person, any payment by order or on behalf
of any person resident outside India in any manner;
Explanation.—For the purpose of this clause, where any person in, or resident in, India
receives any payment by order or on behalf of any person resident outside India F
through any other person (including an authorised person) without a corresponding
inward remittance from any place outside India, then, such person shall be deemed to
have received such payment otherwise than through an authorised person;
(d) enter into any financial transaction in India as consideration for or in association
with acquisition or creation or transfer of a right to acquire, any asset outside India by
any person.
Explanation.—For the purpose of this clause, “financial transaction” means making G
any payment to, or for the credit of any person, or receiving any payment for, by order
or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or
promissory note, or transferring any security or acknowledging any debt.
41
10. Authorised person.—(1) The Reserve Bank may, on an application made to it in
this behalf, authorise any person to be known as authorised person to deal in foreign
exchange or in foreign securities, as an authorised dealer, money changer or off-shore
banking unit or in any other manner as it deems fit. H
260 SUPREME COURT REPORTS [2021] 13 S.C.R.

A person” who can deal in foreign exchange. Further, Section 10(4) provides
that such authorized persons shall comply with all directions issued by
the RBI while dealing in foreign exchange. Section 10(4) reads as follows:
“10. Authorised person.—… (4) An authorised person shall, in
all his dealings in foreign exchange or foreign security, comply
B with such general or special directions or orders as the Reserve
Bank may, from time to time, think fit to give, and, except with the
previous permission of the Reserve Bank, an authorised person
shall not engage in any transaction involving any foreign exchange
or foreign security which is not in conformity with the terms of his
authorisation under this section.”
C
The RBI is granted the power to issue directions to authorized
persons under Section 11(1). Section 11(1) provides:
“11. Reserve Bank’s powers to issue directions to
authorised person.—(1) The Reserve Bank may, for the purpose
D of securing compliance with the provisions of this Act and of any
rules, regulations, notifications or directions made thereunder, give
to the authorised persons any direction in regard to making of
payment or the doing or desist from doing any act relating to foreign
exchange or foreign security.”

E 32. It is in the exercise of its powers under Section 10(4) read
with Section 11(1), that the RBI issued a circular42 dated 24 August
2000, which provided guidance to authorized dealers in relation to FEMA.
The relevant part of the circular in relation to MTTs is extracted below:
“Part B - Merchanting Trade
F Authorised dealers may take necessary precautions in
handling merchant trade transactions or intermediary trade
transactions to ensure that (a) goods involved in the
transaction are permitted to be imported into India, (b) such
transactions do not involve foreign exchange outlay for a period
exceeding three months, and (c) all Rules, Regulations and
G
Directions applicable to export out of India are complied
with by the export leg and all Rules, Regulations and
Directions applicable to import are complied with by the
import leg of merchanting trade transactions. Authorised
42
H A.P. (DIR Series) Circular No 9
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 261
[DR. DHANANJAYA Y CHANDRACHUD, J.]

dealers are also required to ensure timely receipt of payment for A
the export leg of such transactions.”
(emphasis supplied)
From the above, it is clear that an MTT could only be in respect
of goods whose import was permitted into India. A similar direction was
retained in the circular43 dated 19 June 2003. B

33. Thereafter, the RBI issued a circular44 dated 17 January 2014
titled “Merchanting Trade Transactions”, which revised the MTT
guidelines in light of the recommendations of the Technical Committee
on Services/Facilities to Exporters. Clause 2(i) of the circular noted:
C
“i) Goods involved in the merchanting or intermediary trade
transactions would be the ones that are permitted for exports/
imports under the prevailing Foreign Trade Policy (FTP) of India,
at the time of entering into the contract and all the rules, regulations
and directions applicable to exports (except Export Declaration
Form) and imports (except Bill of Entry) are complied with for D
the export leg and import leg respectively;”
Hence, the circular modified the earlier requirement and now
clarified that MTTs could not be conducted in respect of goods whose
import and export are prohibited under the FTP. It is important to note
that this was based on a suggestion made by the Technical Committee E
on Services/Facilities to Exporters, which stated as follows:
“Issues Associated with Merchanting Trade
[…]
4.9 Goods covered under Merchanting trade should be allowed to F
be exported/imported into the country as per the prevailing Foreign
Trade Policy (FTP) at the time of entering into the contract with
the overseas suppliers, in order to avoid entering into trading
contracts that are not permitted to be imported/exported under
the FTP. To safeguard the interest of the exporter, the export leg
of the transaction can be recommended to be covered by Letter G
of Credit (or) through insurance from ECGC.”

43
A.P. (DIR Series) Circular No 106
44
A.P. (DIR Series) Circular No. 95 H
262 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 34. These guidelines were soon revised through a circular45 dated
28 March 2014. However, there was no material change to the
requirement that MTTs cannot be conducted in respect of goods whose
import/export is prohibited under the FTP. The relevant clause of the
circular is extracted as follows:
B “ii) Goods involved in the merchanting trade transactions would
be the ones that are permitted for exports/imports under the
prevailing Foreign Trade Policy (FTP) of India, as on the date of
shipment and all the rules, regulations and directions applicable to
exports (except Export Declaration Form) and imports (except
Bill of Entry), are complied with for the export leg and import leg
C respectively;”
35. Subsequently, this circular was modified by the 2020 MTT
Guidelines which introduced the impugned Clause 2(iii). On an analysis
of the above circulars, it is clear that the RBI has never attempted to
permit/prohibit MTTs into specific goods. Rather, from the very first
D circular, it has relied upon the goods’ position under India’s FTP to regulate
MTTs. Till 2013, MTTs were prohibited in relation to goods whose import
was not allowed under the FTP. Since 2013, they have also been
prohibited in relation to goods whose export is not allowed under the
FTP.
E 36. 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”.
F Hence, the role of the RBI under FEMA is directed towards ensuring
that 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.
G 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.

45
H A.P. (DIR Series) Circular No.115
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 263
[DR. DHANANJAYA Y CHANDRACHUD, J.]

37. Such a decision, regarding the products in which import or A
export is prohibited in India, is made by the UOI under Section 3(2) of
the Foreign Trade Act. Section 3(2) provides as follows:
“3. Powers to make provisions relating to imports and
exports.—… (2) The Central Government may also, by Order
published in the Official Gazette, make provision for prohibiting, B
restricting or otherwise regulating, in all cases or in specified classes
of cases and subject to such exceptions, if any, as may be made
by or under the Order, the import or export of goods or services
or technology:
Provided that the provisions of this sub-section shall be applicable, C
in case of import or export of services or technology, only when
the service or technology provider is availing benefits under the
foreign trade policy or is dealing with specified services or specified
technologies.”
38. While exercising its powers under Section 3(2), the UOI issued D
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. Mr Vikramjeet Banerjee, learned
ASG appearing on behalf of the Ministry of Commerce and DGFT, has
pointed out that the notification46 dated 25 August 2020 now categorizes
the export of PPE Masks and N-95/FFP 2 Masks as “Restricted” (instead E
of “Prohibited”) and limits their export to 50 lakh units per month, while
medical coveralls of all classes/categories (including PPE overalls) are
categorized under the “Free” category, i.e., they are freely exportable.
39. The appellant has challenged the suitability of the RBI’s
decision to link the MTT of goods with their prohibition under India’s F
FTP by arguing that the objectives behind the two are entirely different.
To support their argument, the appellant has relied on the nature of an
MTT, where the goods do not enter or leave Indian territory and the
Indian entity acts as an intermediary in an exchange between two foreign
countries. G
40. In its affidavit, the RBI has explained the genesis of MTTs in
the following terms:

46
Notification No 29/2015-2020 H
264 SUPREME COURT REPORTS [2021] 13 S.C.R.

A “7. It is submitted that under the Merchanting Trade Transactions
(hereinafter referred to as “MTT”) an Indian Citizen facilitates
the export of good or material from a Company or individual of an
exporting country (other than India) and then import/supply the
said good or material to a Company or individual in another country,
which is also other than India. In short, by MTT the Indian citizen
B
while acting as intermediary, facilitates an international trade
between two different countries. It is submitted that the MTTs
are very closely analogous to, and have all the elements of, export
as well as import except the fact that the goods are physically not
located in India. The first leg of the transaction, known as import
C leg, requires outlay of foreign exchange by the entity located in
India carrying on the transaction, for the purpose of making
payment for the goods being purchased overseas. The payment
is made by the Indian Entity by drawing foreign exchange or
obtaining a letter of credit in India from its banker, authorised
dealer of foreign exchange (i.e. authorised dealer bank) also
D
located in India. Thus, there is a clear nexus of the first leg of the
transaction to India and the involvement of its foreign exchange
reserves. It is further submitted that in a successful trade, the
Indian entity so purchasing the goods overseas recovers its money
in the second leg of transaction, known as export leg, by selling
E the goods to its buyer, also located overseas, but the money is
under the law to be repatriated to India to the credit of Indian
entity, which is located in India, within a strict time frame.”
From the above extract, the following salient features of MTTs
emerge: (i) the original supplier and ultimate buyer of the goods are
F foreign entities, with the Indian entity acting as an intermediary between
them; (ii) the goods do not enter the territory of India while shifting
hands between the supplier and the buyer; (iii) Indian foreign reserves
are implicated when payment is remitted outside India when the Indian
entity initially pays the supplier for the goods; and (iv) foreign exchange
is remitted to India when the Indian entity receives the payment from
G the buyer of the goods.
41. The respondents have argued that the above features make
MTTs analogous to imports/exports, while the appellant has attempted
to differentiate them by noting that the goods never enter India’s territory
during an MTT. To resolve this, we must understand how MTTs are
H considered internationally.
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 265
[DR. DHANANJAYA Y CHANDRACHUD, J.]

42. The International Monetary Fund47 in its sixth edition of the A
Balance of Payments and International Investment Position Manual 48
defines MTT in the following terms:
“10.41 Merchanting is defined as the purchase of goods by a
resident (of the compiling economy) from a nonresident combined
with the subsequent resale of the same goods to another B
nonresident without the goods being present in the compiling
economy. Merchanting occurs for transactions involving goods
where physical possession of the goods by the owner is
unnecessary for the process to occur.”
Thereafter, it considers how MTTs should be recorded by noting: C
“10.44 The treatment of merchanting is as follows:
(a) The acquisition of goods by merchants is shown under goods
as a negative export of the economy of the merchant;
(b) The sale of goods is shown under goods sold under merchanting D
as a positive export of the economy of the merchant;
(c) The difference between sales over purchases of goods for
merchanting is shown as the item “net exports of goods under
merchanting.” This item includes merchants’ margins, holding gains
and losses, and changes in inventories of goods under merchanting.
E
As a result of losses or increases in inventories, net exports of
goods under merchanting may be negative in some cases; and
(d) Merchanting entries are valued at transaction prices as agreed
by the parties, not FOB.”
This makes it clear that while the goods involved in an MTT never F
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.
43. This conclusion is also supported by the IMF’s accompanying G
Balance of Payments Compilation Guide49, which notes:
47
“IMF’’
48
Pages 157-159, available at <https://www.imf.org/external/pubs/ft/bop/2007/pdf/
BPM6.pdf> accessed on 25 November 2021
49
Page 184, available at <https://www.imf.org/external/pubs/ft/bop/2014/pdf/
BPM6_11F.pdf> accessed on 25 November 2021 H
266 SUPREME COURT REPORTS [2021] 13 S.C.R.

A “Merchanting
11.29 Merchanting transactions—that is, the purchase of
goods by a resident (of the compiling economy) from a
nonresident combined with the subsequent resale of the
same goods to another nonresident without the goods being
B present in the compiling economy—should be recorded in
the balance of payments as transactions in goods. This a
change from the BPM5, where merchanting was to be
recorded as a service. The change in treatment is in line
with the change of ownership rule that underpins the balance
of payments conceptual framework. If there is a change in the
C physical form of the goods during the period they are owned by
the merchant, as a result of manufacturing services, then the
transaction should be classified as general merchandise, and not
as merchanting.
11.30 For the economy of the merchant, goods acquired under
D merchanting should be recorded as a negative credit in the balance
of payments in the period the merchant acquires the goods, and
when they are sold they should be recorded in that period as goods
sold under merchanting as a positive credit…”
(emphasis supplied)
E
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
F resident country, even when they never physically enter their territory.
44. 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
G 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.

H
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 267
[DR. DHANANJAYA Y CHANDRACHUD, J.]

C.3 The necessity of the measure A
45. The prong evaluating necessity is often conflated with the
prong evaluating the suitability of a measure. The analysis of necessity
is an extension of evaluating the suitability of a restriction, coupled with
an analysis of whether the proposed measure is the least restrictive
manner of arriving at the intended legitimate State interest. This prong B
has traces of the “narrowly tailored” state interest50 that has often been
used by this Court in evaluating claims of infringement of fundamental
rights under Part III.
46. The appellant has contended that a prohibition of exports in
PPE products was sufficient to achieve the objective of ensuring adequate C
supplies, and it was not necessary to also prohibit MTTs. Further, it is
argued that the appellant facilitating an MTT of PPE products between
two countries does not impact their stock in India. In any event, the
appellant has argued that a less-intrusive alternative would be to ban
MTTs only for goods whose imports have been prohibited under the
FTP or allow individuals to seek exemptions from the RBI in relation to D
goods whose import/export has been prohibited by the FTP where the
RBI can assess, on a case-by-case basis, whether their MTT should
also be prohibited. While these measures have been suggested on a
general basis, the appellant has limited his challenge in the present case
only to the prohibition of PPE products. Hence, we shall be limiting our E
analysis in relation to that.
47. Having considered the nature of MTTs in Section C.2, we
reject 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. F
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 G
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
50
Aadhar (5J) (supra), paras 420 and 424 H
268 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 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
B
interest.

C.4 Balancing fundamental rights with State aims
48. The fourth and final prong of the proportionality analysis
C involves the crucial task of conducting a balancing exercise. The Court
is called upon to legitimise the “social importance of the limitation on a
constitutional right”51. A measure that fails to justify its existence on this
prong is considered to have a disproportionate impact on the right-holder52.
49. Before we commence our analysis on the balancing of this
D right, we think it is critical for the Court to elaborate on the purpose and
duties of the RBI, in order to better appreciate the objective behind its
seemingly onerous restrictions and regulations.

C.4.1 Regulatory Role of the RBI
E
50. The RBI was established by the Reserve Bank of India Act
193453. By way of an amendment in 201654, the preamble of the statute
was amended to reflect the importance of a modern monetary policy
framework in an increasingly complex economy. The RBI has been
entrusted with the exclusive authority to operate the monetary policy
F
framework of India55.
51. A Constitution Bench in Joseph Kuruvilla Vellukunnel v.
Reserve Bank of India56 considered a challenge to certain statutory
provisions introduced in the Banking Companies Act 1949 which vested
the RBI with the powers to file an application for winding-up of any
G
51
Aadhar (5J) (supra), paras 335 and 369
52
Ibid
53
“RBI Act’’
54
Act 28 of 2016
55
Sections 45Z to 45Zo of the RBI Act
56
H AIR 1962 SC 1371
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 269
[DR. DHANANJAYA Y CHANDRACHUD, J.]

company. Before conducting an analysis of the constitutional challenge A
under Articles 14 and 19, the Constitution Bench prefaced its analysis
with the raison d’etre and importance of the RBI as a regulatory body.
Justice M Hidayatullah (as the learned Chief Justice then was) observed
the following:
“16. Before we consider the arguments of the two sides in detail, B
we wish to say a few words about the position of the Reserve
Bank in the financial affairs of India and also about its place in the
scheme of the law. The Reserve Bank of India was established
on April 1, 1935 by the Reserve Bank of India Act, 1934. Even
before the establishment of the Reserve Bank, suggestions were
made that there should be a central bank in India, and the Royal C
Commission on Indian Currency and Finance had recommended
in 1926 that the currency and credit of the country could only be
put on a firm foundation, if a central bank was established. The
first Bill introduced in 1927 by Sir Basil Blackett was dropped.
The Indian Central Banking Inquiry Committee, however, reported D
in 1931 that there was a need for a central banking institution in
India “for securing the development of the Indian banking and
credit system on a sound and proper basis”. The Committee pointed
out that some of the Provincial Committees had also suggested
the establishment of the Reserve Bank. The Committee ended by
saying: E

“We accordingly consider it to be a matter of supreme
importance from the point of view of the development of banking
facilities in India, and of her economic advancement generally,
that a Central or Reserve Bank should be created at the earliest
possible date. The establishment of such a bank would by F
mobilization of the banking and currency reserves of
India in one hand tend to increase the Vol. of credit
available for trade, industry and agriculture and to
mitigate the evils of fluctuating and high charges for the
use of such credit caused by seasonal stringency.” (Vol. G
I, Part I. Chap. XXII, para 605)
The White Paper on Indian Constitutional Reforms also
recommended the establishment of a Reserve Bank “free
from political influence”. As a result of these findings, when a
fresh Bill was introduced by Sir George Schuster on September H
270 SUPREME COURT REPORTS [2021] 13 S.C.R.

A 8, 1933 it was accepted and received the assent of the Governor-
General on March 6, 1934.
17. The functions of the Reserve Bank were generally
indicated in the preamble as the regulation of the issue of
the Bank notes and the keeping of the reserves with a view
B to securing monetary stability in India and generally to
operate the currency and credit system of the country to
its advantage. But to enable the Reserve Bank to function
in this manner, it had to be given other powers, so that it
may function effectively as a central bank. To this end, the
Reserve Bank was given the right to hold the cash balances of
C important commercial banks, a right to transact Government
business in India which was also its obligation, and to enter into
agreements with State Governments to transact their business.
[……]

D 18. But the most important function of the Reserve Bank
is to regulate the banking system generally. The Reserve
Bank has been described as a Bankers’ Bank. Under the
Reserve Bank of India Act, the scheduled banks maintain
certain balances and the Reserve Bank can lend assistance
to those banks “as a lender of the last resort”. The Reserve
E Bank has also been given certain advisory and regulatory
functions. By its position as a central bank, it acts as an agency
for collecting financial information and statistics. It advises
Government and other banks on financial and banking matters,
and for this purpose, it keeps itself informed of the activities and
F monetary position of scheduled and other banks, and inspects the
books and accounts of scheduled banks and advises Government
after inspection whether a particular bank should be included in
the Second Schedule or not. […..]”
(emphasis supplied)
G 52. A two-judge Bench of this Court in Peerless General Finance
and Investment Co. Limited v. Reserve Bank of India57 considered
an alleged constitutional infringement of Article 19(1)(g) in the context
of RBI’s regulation of savings schemes run by Residuary Non-Banking
Companies. The thrust of the impugned regulation was to regulate deposit
H 57
(1992) 2 SCC 343
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 271
[DR. DHANANJAYA Y CHANDRACHUD, J.]

investment schemes issued by Residuary Non-Banking Companies, in A
order to ensure the security of deposits made by consumers. Justice N
M Kasliwal elaborated on the role of the Courts with specific reference
to the regulatory powers of the RBI. The decision highlighted the
importance of judicial abstinence from matters of economic policy
requiring expertise:
B
“30. Before examining the scope and effect of the impugned
paragraphs (6) and (12) of the directions of 1987, it is also important
to note that Reserve Bank of India which is bankers’ bank is a
creature of statute. It has large contingent of expert advice relating
to matters affecting the economy of the entire country and nobody
can doubt the bona fides of the Reserve Bank in issuing the C
impugned directions of 1987. The Reserve Bank plays an
important role in the economy and financial affairs of India
and one of its important functions is to regulate the banking
system in the country. It is the duty of the Reserve Bank
to safeguard the economy and financial stability of the D
country [….]
31. The function of the Court is to see that lawful authority is not
abused but not to appropriate to itself the task entrusted to that
authority. It is well settled that a public body invested with statutory
powers must take care not to exceed or abuse its power. It must E
keep within the limits of the authority committed to it. It must act
in good faith and it must act reasonably. Courts are not to
interfere with economic policy which is the function of
experts. It is not the function of the courts to sit in judgment
over matters of economic policy and it must necessarily be
left to the expert bodies. In such matters even experts can F
seriously and doubtlessly differ. Courts cannot be expected
to decide them without even the aid of experts.”
(emphasis supplied)
In his concurring opinion, Justice V Ramaswamy noted the G
statutory importance of the RBI and held that directions validly issued
by the RBI are in the nature of statutory regulations:
“51. This Court in Joseph Kuruvilla Vellukunnel v. Reserve Bank
of India [1962 Supp 3 SCR 632 : AIR 1962 SC 1371 : (1962) 32
Comp Cas 514] held that the RBI is “a bankers’ bank and lender
H
272 SUPREME COURT REPORTS [2021] 13 S.C.R.

A of the last resort”. Its objective is to ensure monetary stability in
India and to operate and regulate the credit system of the country.
It has, therefore, to perform a delicate balance between the need
to preserve and maintain the credit structure of the country by
strengthening the rule as well as apparent creditworthiness of the
banks operating in the country and the interest of the depositors.
B
In underdeveloped country like ours, where majority population
are illiterate and poor and are not conversant with banking
operations and in underdeveloped money and capital market with
mixed economy, the Constitution charges the State to prevent
exploitation and so the RBI would play both promotional and
C regulatory roles. Thus the RBI occupies place of “pre-
eminence” to ensure monetary discipline and to regulate
the economy or the credit system of the country as an expert
body. It also advices the government in public finance and
monetary regulations. The banks or non-banking
institutions shall have to regulate their operations in
D
accordance with, not only as per the provisions of the Act
but also the rules and directions or instructions issued by
the RBI in exercise of the power thereunder. Chapter 3-B
expressly deals with regulations of deposit and finance
received by the RNBCs. The directions, therefore, are
E statutory regulations.
[…]
65. No one can have fundamental right to do any unregulated
business with the subscribers/depositors’ money. [….]Thus
there is a reasonable nexus between the regulation and the public
F purpose, namely, security to the depositors’ money and the right
to repayment without any impediment, which undoubtedly is in
the public interest.
(emphasis supplied)

G Justice V Ramaswamy further articulated the role of judicial
review in matters of economic legislation and the democratic necessity
of judicial abstinence:
68. It is well settled that the court is not a tribunal from the
crudities and inequities of complicated experimental
economic legislation. The discretion in evolving economic
H
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 273
[DR. DHANANJAYA Y CHANDRACHUD, J.]

measures, rests with the policy makers and not with the A
judiciary. Indian social order is beset with social and
economic inequalities and of status, and in our socialist
secular democratic Republic, inequality is an anathema to
social and economic justice. The Constitution of India
charges the State to reduce inequalities and ensure decent
B
standard of life and economic equality. The Act assigns the
power to the RBI to regulate monetary system and the
experimentation of the economic legislation, can best be
left to the executive unless it is found to be unrealistic or
manifestly arbitrary. Even if a law is found wanting on trial,
it is better that its defects should be demonstrated and C
removed than that the law should be aborted by judicial
fiat. Such an assertion of judicial power deflects
responsibilities from those on whom a democratic society
ultimately rests. The Court has to see whether the scheme,
measure or regulation adopted is relevant or appropriate to the
D
power exercised by the authority. Prejudice to the interest of
depositors is a relevant factor. Mismanagement or inability to pay
the accrued liabilities are evils sought to be remedied. The directions
are designed to preserve the right of the depositors and the ability
of RNBC to pay back the contracted liability. It is also intended to
prevent mismanagement of the deposits collected from vulnerable E
social segments who have no knowledge of banking operations or
credit system and repose unfounded blind faith on the company
with fond hope of its ability to pay back the contracted amount.
Thus the directions maintain the thrift for saving and streamline
and strengthen the monetary operations of RNBCs.”
F
(emphasis supplied)
53. A three-judge Bench of this Court in Internet and Mobile
Association of India v. Reserve Bank of India 58 (“Internet &
Mobile Association”) recently considered a challenge to the RBI’s
ban of trading in cryptocurrencies. In examining this challenge, the Court G
detailed the regulatory importance of the RBI through a historical and
textual analysis of the RBI Act. Justice V Ramasubramanian, speaking
on behalf of the Court, observed that the RBI assumes a special role,
compared to other statutory bodies. Its decisions are reflective of its
58
(2020) 10 SCC 274 H
274 SUPREME COURT REPORTS [2021] 13 S.C.R.

A expertise and guide the monetary policy of the country. Hence, a policy
decision of the RBI warrants deference from this Court. The Court
held:
“84. A careful scan of the RBI Act, 1934 in its entirety would
show that the operation/regulation of the credit/financial system
B of the country to its advantage, is a thread that connects all the
provisions which confer powers upon RBI, both to determine policy
and to issue directions.
[…]
189. It is contended by Shri Ashim Sood, learned Counsel
C for the petitioners that the impugned Circular does not have
either the status of a legislation or the status of an executive
action, but is only the exercise of a power conferred by
statute upon a statutory body corporate. Therefore, it is
his contention that the judicial rule of deference as
D articulated in R.K. Garg v. Union of India [R.K. Garg v.
Union of India, (1981) 4 SCC 675 : 1982 SCC (Tax) 30] ,
Balco Employees’ Union v. Union of India [Balco
Employees’ Union v. Union of India, (2002) 2 SCC 333]
and Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons
(P) Ltd. v. Union of India, (2019) 4 SCC 17] will not apply
E to the decision taken by a statutory body like RBI. If, a
legislation relating to economic matters is placed at the highest
pedestal, an executive decision with regard to similar matters will
be placed only at a lower pedestal and the decision taken by a
statutory body may not even be entitled to any such deference or
F reverence.
190. But given the scheme of the RBI Act, 1934 and the
Banking Regulation Act, 1949, the above argument appears
only to belittle the role of RBI. RBI is not just like any
other statutory body created by an Act of legislature. It is a
G creature, created with a mandate to get liberated even from
its creator. This is why it is given a mandate — (i) under the
Preamble of the RBI Act, 1934, to operate the currency and credit
system of the country to its advantage and to operate the monetary
policy framework in the country; (ii) under Section 3(1), to take
over the management of the currency from the Central
H Government; (iii) under Section 20, to undertake to accept monies
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 275
[DR. DHANANJAYA Y CHANDRACHUD, J.]

for account of the Central Government, to make payments up to A
the amount standing to the credit of its account and to carry out
its exchange, remittance and other banking operations, including
the management of the public debt of the Union; (iv) under Section
21(1), to have all the money, remittance, exchange and banking
transactions in India of the Central Government entrusted with it;
B
(v) under Section 22(1), to have the sole right to issue bank notes
in India and (vi) under Section 38, to get rupees into circulation
only through it, to the exclusion of the Central Government.
Therefore, RBI cannot be equated to any other statutory
body that merely serves its master. It is specifically
empowered to do certain things to the exclusion of even C
the Central Government. Therefore, to place its decisions
at a pedestal lower than that of even an executive decision,
would do violence to the scheme of the Act.
[….]
192. But as we have pointed out above, RBI is not just any other D
statutory authority. It is not like a stream which cannot be greater
than the source. The RBI Act, 1934 is a pre-constitutional
legislation, which survived the Constitution by virtue of Article
372(1) of the Constitution. The difference between other statutory
creatures and RBI is that what the statutory creatures can do, E
could as well be done by the executive. The power conferred
upon the delegate in other statutes can be tinkered with, amended
or even withdrawn. But the power conferred upon RBI under
Section 3(1) of the RBI Act, 1934 to take over the management
of the currency from the Central Government, cannot be taken
away. The sole right to issue bank notes in India, conferred by F
Section 22(1) cannot also be taken away and conferred upon any
other bank or authority. RBI by virtue of its authority, is a member
of the Bank of International Settlements, which position cannot
be taken over by the Central Government and conferred upon
any other authority. Therefore, to say that it is just like any G
other statutory authority whose decisions cannot invite due
deference, is to do violence to the scheme of the Act. In
fact, all countries have Central banks/authorities, which, technically
have independence from the Government of the country. To ensure
such independence, a fixed tenure is granted to the Board of
H
276 SUPREME COURT REPORTS [2021] 13 S.C.R.

A Governors, so that they are not bogged down by political
expediencies. […..]Therefore, we do not accept the argument
that a policy decision taken by RBI does not warrant any
deference.
(emphasis supplied)
B In further analysing the wide-ranging powers entrusted with the
RBI, the Court noted that its regulatory powers would be tested against
the cornerstone of proportionality:
“224. It is no doubt true that RBI has very wide powers not
only in view of the statutory scheme of the three enactments
C indicated earlier, but also in view of the special place and
role that it has in the economy of the country. These powers
can be exercised both in the form of preventive as well as
curative measures. But the availability of power is different
from the manner and extent to which it can be exercised.
D While we have recognised elsewhere in this order, the
power of RBI to take a pre-emptive action, we are testing
in this part of the order the proportionality of such measure,
for the determination of which RBI needs to show at least some
semblance of any damage suffered by its regulated entities. But
there is none. When the consistent stand of RBI is that they have
E not banned VCs and when the Government of India is unable to
take a call despite several committees coming up with several
proposals including two draft Bills, both of which advocated exactly
opposite positions, it is not possible for us to hold that the impugned
measure is proportionate.”
F (emphasis supplied)
54. Thus, it is settled that the RBI 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. Adverting to the facts of this case, the RBI is empowered by
G FEMA to manage, regulate, and supervise the foreign exchange of India.
It is trite law that courts do not interfere with the economic 59 or
regulatory60 policy adopted by the government. This lack of interference
59
R K Garg v. Union of India, (1981) 4 SCC 675; Balco Employees Union v. Union
of India, (2002) 2 SCC 333
60
Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17; Ebix Singapore v.
H Committee of Creditors of Educomp Solutions (P) Ltd., 2021 SCC OnLine SC 313
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 277
[DR. DHANANJAYA Y CHANDRACHUD, J.]

is in deference to the democratically elected government’s wisdom, A
reflecting the will of the people. As held by a three-judge Bench of this
Court in Internet & Mobile Association (supra), the regulations
introduced by RBI are in the nature of statutory regulation and demand
a similar level of deference that is accorded to executive and Parliamentary
policy.
B
55. 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 C
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. The Constitution
Bench in Modern Dental College (supra) had remarked on the role
of regulatory mechanisms in liberalized economies. Speaking for the D
Bench, Justice A K Sikri had observed:
“87. Regulatory mechanism, or what is called regulatory
economics, is the order of the day. In the last 60-70 years, economic
policy of this country has travelled from laissez faire to mixed
economy to the present era of liberal economy with regulatory E
regime. With the advent of mixed economy, there was
mushrooming of the public sector and some of the key industries
like aviation, insurance, railways, electricity/power,
telecommunication, etc. were monopolised by the State. Licence/
permit raj prevailed during this period with strict control of the
Government even in respect of those industries where private F
sectors were allowed to operate. However, Indian economy
experienced major policy changes in early 90s on LPG Model i.e.
liberalisation, privatisation and globalisation. With the onset of
reforms to liberalise the Indian economy, in July 1991, a new
chapter has dawned for India. This period of economic transition G
has had a tremendous impact on the overall economic development
of almost all major sectors of the economy.
88. When we have a liberal economy which is regulated by the
market forces (that is why it is also termed as market economy),
prices of goods and services in such an economy are determined H
278 SUPREME COURT REPORTS [2021] 13 S.C.R.

A in a free price system set up by supply and demand. This is often
contrasted with a planned economy in which a Central Government
determines the price of goods and services using a fixed price
system. Market economies are also contrasted with mixed
economy where the price system is not entirely free, but under
some government control or heavily regulated, which is sometimes
B
combined with State led economic planning that is not extensive
enough to constitute a planned economy.
89. With the advent of globalisation and liberalisation, though the
market economy is restored, at the same time, it is also felt that
market economies should not exist in pure form. Some regulation
C of the various industries is required rather than allowing self-
regulation by market forces. This intervention through regulatory
bodies, particularly in pricing, is considered necessary for the
welfare of the society and the economists point out that such
regulatory economy does not rob the character of a market
D economy which still remains a market economy. Justification for
regulatory bodies even in such industries managed by private
sector lies in the welfare of people. Regulatory measures are felt
necessary to promote basic well being for individuals in need. It is
because of this reason that we find regulatory bodies in all vital
industries like, insurance, electricity and power,
E telecommunications, etc.”
56. 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. Scholars
across the world have warned against the judiciary constitutionalising an
F unregulated marketplace61. 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 inhere a right to evade or avoid regulation. In liberalized
G economies, regulatory mechanisms represent democratic interests of
setting the terms of operation for private economic actors. This Court
does not espouse shunning of judicial review when actions of regulatory
bodies are questioned. Rather, it implores intelligent care in probing the
61
Robert Post & Amanda Shanor, Adam Smith’s First Amendment, 128 HARVARD LAW
REVIEW F ORUM 165, 167 (2015), available at <https://harvardlawreview.org/2015/03/
H adam-smiths-first-amendment/>
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 279
[DR. DHANANJAYA Y CHANDRACHUD, J.]

bona fides of such action and nuanced deference to their expertise in A
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.
57. In the instant case, the RBI has demonstrated a rational nexus B
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 connection between the use of Indian foreign C
exchange reserves, MTTs and the availability of domestic stocks (as
noted in Sections C.2 and C.3). 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 D
RBI and the UOI, in the interests of preserving public health in a
pandemic. This deference is by no means uncritical. In fact, one of us
(Justice D Y Chandrachud), in a three-judge Bench of this Court in
Gujarat Mazdoor Sabha v. State of Gujarat62 had decried the State’s
tenuous claim of a public health emergency to dilute welfare conditions
in labour laws. This Court had stressed that balancing individual rights E
against measures adopted to combat the public health crisis must continue
to satisfy the test of proportionality. Justice D Y Chandrachud noted:
“30. Even if we were to accept the respondent’s argument at its
highest, that the pandemic has resulted in an internal disturbance,
we find that the economic slowdown created by the Covid-19 F
Pandemic does not qualify as an internal disturbance threatening
the security of the State. The pandemic has put a severe burden
on existing, particularly public health, infrastructure and has led to
a sharp decline in economic activities. The Union Government
has taken recourse to the provisions of the Disaster Management G
Act, 2005. [Ministry of Home Affairs, Order No. 40-3/2020-DM-
I(A) dated 24-3-2020.] However, it has not affected the security
of India, or of a part of its territory in a manner that disturbs the
peace and integrity of the country. The economic hardships caused
62
(2020) 10 SCC 459 H
280 SUPREME COURT REPORTS [2021] 13 S.C.R.

A by Covid-19 certainly pose unprecedented challenges to
governance. However, such challenges are to be resolved by the
State Governments within the domain of their functioning under
the law, in coordination with the Central Government. Unless the
threshold of an economic hardship is so extreme that it leads to
disruption of public order and threatens the security of India or of
B
a part of its territory, recourse cannot be taken to such emergency
powers which are to be used sparingly under the law. Recourse
can be taken to them only when the conditions requisite for a
valid exercise of statutory power exist under Section 5. That is
absent in the present case.
C […]
40. The need for protecting labour welfare on one hand and
combating a public health crisis occasioned by the pandemic on
the other may require careful balances. But these balances must
accord with the rule of law. A statutory provision which conditions
D the grant of an exemption on stipulated conditions must be
scrupulously observed. It cannot be interpreted to provide a free
reign for the State to eliminate provisions promoting dignity and
equity in the workplace in the face of novel challenges to the
State administration, unless they bear an immediate nexus to
E ensuring the security of the State against the gravest of threats.”
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
F 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.

G
D Conclusion
58. Therefore, we find that the judgment dated 8 October 2020 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
H the availability of sufficient domestic stock of PPE products. The measure
AKSHAY N PATEL v. RESERVE BANK OF INDIA & ANR. 281
[DR. DHANANJAYA Y CHANDRACHUD, J.]

was validly enacted, in pursuance of legitimate state interest and did not A
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.
59. For the above reasons, we find no merit in the appeal. The
appeal accordingly stands dismissed. B
60. Pending application(s), if any, shall stand disposed of.

Ankit Gyan Appeal dismissed.

C

D

E

F

G

H