Supreme Court Upholds Import Restrictions on Pulses: Union of India vs. Agricas LLP (26 August 2020)

LEGAL ISSUE: Whether the Central Government can impose import restrictions on pulses under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), or if such restrictions must exclusively adhere to the procedure under Section 9A of the FTDR Act.

CASE TYPE: Foreign Trade Regulation/Civil

Case Name: Union of India and Others vs. Agricas LLP and Others etc.

Judgment Date: 26 August 2020

The Supreme Court of India, in a recent judgment, addressed the legality of import restrictions imposed on pulses by the Union of India. The core issue revolved around whether the government could restrict imports under the general powers of Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), or if it was mandatory to follow the specific procedures outlined in Section 9A of the same Act, which deals with quantitative restrictions. This case is crucial for understanding the balance between trade regulation and the protection of domestic industries.

The judgment was delivered by a three-judge bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari, and Justice Sanjiv Khanna, with Justice Sanjiv Khanna authoring the opinion.

Case Background

The case originated from a series of notifications issued by the Union of India on March 29, 2019, which amended the import policy conditions for various pulses, including Moong, Peas, Urad, and Pigeon Peas/Toor Dal. These notifications imposed annual quotas on the import of these pulses and mandated that such imports be subject to procedures notified by the Directorate General of Foreign Trade (DGFT).

Prior to these notifications, the Union of India had issued similar restrictions on April 25, 2018, which revised the import policy for peas from ‘free’ to ‘restricted.’ These restrictions were challenged in various High Courts, with some granting interim orders allowing imports without licenses or quota restrictions.

The importers argued that the notifications were illegal, as they were issued by the DGFT, which lacked the authority to amend the EXIM policy. They also contended that the notifications were not laid before the Houses of Parliament, as required by Section 19(3) of the FTDR Act, and violated Article 14 of the Constitution. Further, they argued that the restrictions were “quantitative restrictions” under Section 9A of the FTDR Act, which could only be imposed after conducting an inquiry and satisfying specific conditions.

Timeline:

Course of Proceedings

The Madras High Court dismissed the writ petitions filed by M/s. Hira Traders on April 4, 2019. Similarly, the Bombay High Court, Gujarat High Court, and Madhya Pradesh High Court also dismissed similar petitions. However, various other High Courts, including the Rajasthan High Court, passed interim orders allowing imports without restrictions.

Given the conflicting judgments and the widespread impact of the issue, the Supreme Court transferred all the related writ petitions to itself for a consolidated hearing.

Legal Framework

The legal framework for this case primarily involves the following provisions:

• Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act): This section empowers the Central Government to make provisions for the development and regulation of foreign trade, including the power to prohibit, restrict, or otherwise regulate the import or export of goods.
  
  “3. Powers to make provisions relating to imports and exports.– (1) The Central Government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. (2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, 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:”
• Section 9A of the FTDR Act: This section specifically deals with the power of the Central Government to impose quantitative restrictions on imports if it is satisfied that goods are being imported in such increased quantities and under such conditions as to cause or threaten serious injury to domestic industry.
  
  “9A. Power of Central Government to impose quantitative restrictions.– (1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that any goods are imported into India in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may, by notification in the Official Gazette, impose such quantitative restrictions on the import of such goods as it may deem fit:”
• Rule 4 of the Foreign Trade (Regulation) Rules, 1993: This rule states that a person may apply for a license to import or export goods in accordance with the Policy or an Order made under Section 3 of the FTDR Act.
  
  “4. Application for grant of licences– A person may make an application for the grant of a licence to import or export goods in accordance with the provisions of the Policy or an Order made under section 3.”
• Paragraphs 2.04, 2.08, and 2.10 of the Foreign Trade Policy: These paragraphs outline the procedures for restricted goods, the authority of the DGFT to specify procedures, and the actual user condition for imports requiring authorization.
  
  “2.04 Authority to specify Procedures DGFT may specify procedure to be followed by an exporter or importer or by any licensing/Regional Authority (RA) or by any other authority for purposes of implementing provisions of FT (D&R) Act, the Rules and the Orders made there under and FTP. Such procedure, or amendments, if any, shall be published by means of a Public Notice. 2.08 Export/Import of Restricted goods/Services Any goods/service, the export or import of which is ‘Restricted’ may be exported or imported only in accordance with an Authorisation/Permission or in accordance with the procedure prescribed in a Notification/Public Notice issued in this regard. 2.10 Actual User Condition Goods which are importable freely without any ‘Restriction’ may be imported by any person. However, if such imports require an Authorisation, actual user alone may import such good(s) unless actual user condition is specifically dispensed with by DGFT.”
• Safeguard Measures (Quantitative Restrictions) Rules, 2012: These rules prescribe the procedure for imposing quantitative restrictions under Section 9A of the FTDR Act, including the role of the Authorised Officer, investigation, and determination of serious injury or threat of serious injury to domestic industry.
• Article XI of the General Agreement on Tariffs and Trade (GATT) 1994: This article generally prohibits quantitative restrictions on imports and exports, with certain exceptions.
  
  “1. No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.”
• Article XIX of GATT 1994: This article allows for emergency action on imports of particular products if they cause or threaten serious injury to domestic producers.
  
  “1. (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”

Arguments

The importers argued that the notifications issued by the Union of India were, in effect, quantitative restrictions that could only be imposed by following the procedure under Section 9A of the FTDR Act. They contended that Section 9A is a special provision dealing with quantitative restrictions, whereas Section 3 is a general provision, and that recourse to Section 3 was impermissible when the conditions of Section 9A were not met.

The importers also argued that the DGFT’s trade notice, which stipulated that licenses would be issued only to millers or refiners, was an additional criterion not envisaged by the notifications and violated the FTDR Act. They further argued that the notifications were vague and that the term “total quantity” should be interpreted as the quantity per licensee and not the total quantity of imports.

The Union of India, on the other hand, argued that the notifications were issued by the Central Government, not the DGFT, and were thus valid under Article 77 of the Constitution. They contended that Section 3 of the FTDR Act provides a broad power to regulate imports, and that Section 9A is a specific provision that applies only when the government seeks to impose quantitative restrictions due to increased imports causing serious injury to domestic industry. The Union of India also stated that the trade notice was merely a clarification of the ‘actual user’ requirement under the Foreign Trade Policy.

The Union of India submitted that the restrictions were imposed to protect domestic farmers from a fall in prices due to large-scale imports. They argued that the notifications were not solely due to an increase in the quantity of imports but also due to the threat of serious injury to the domestic industry.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the notifications issued by the Central Government under Section 3 of the FTDR Act are valid.
2. Whether the trade notice issued by the DGFT is valid.
3. Whether the impugned notifications are in the nature of ‘quantitative restrictions’ under Section 9A of the FTDR Act and if so, whether the procedure under Section 9A of the FTDR Act read with Safeguard Measures (Quantitative Restrictions) Rules, 2012 had been followed.
4. Whether the expression ‘total quantity’ specified in the notification refers to the total quantity of the commodity which could be imported or the quantity per licence issued.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the validity of the impugned notifications and trade notices, rejecting the importers’ challenge. The court held that the notifications were issued by the Central Government under the powers conferred by Section 3(2) of the FTDR Act, and that the DGFT’s trade notice was merely a clarification of the ‘actual user’ requirement.

The Supreme Court also held that Section 9A of the FTDR Act, which deals with quantitative restrictions, is not the exclusive provision for imposing such restrictions. The court clarified that Section 3(2) of the FTDR Act empowers the Central Government to impose restrictions on imports, and that this power is not curtailed by Section 9A.

The court also noted that the importers could not enforce or claim a violation of paragraph (1) of Article XI of GATT-1994 in the domestic courts unless the said Article has been expressly or by necessary implication incorporated into domestic law.

The court also clarified that the imports, if any, made relying on interim orders would be held to be contrary to the notifications and the trade notices issued under the FTDR Act and would be dealt with under the provisions of the Customs Act 1962.

The court cited the following authorities in its reasoning:

• Delhi International Airport Limited v. International Lease Finance Corporation and others [(2015) 8 SCC 446]: Referred to for explaining Articles 77 and 166 of the Constitution regarding executive action.
• Maganbhai Ishwarbhai Patel Etc. v. Union of India [(1970) 3 SCC 400]: Referred to for distinguishing between the formation and performance of a treaty obligation and stating that treaties do not have the force of law unless enacted by Parliament.
• Gramophone Company of India Ltd. v. Birendra Bahadur Pandey and Others [(1984) 2 SCC 534]: Referred to for stating that municipal law prevails over international law in case of conflict and that courts must interpret statutes to avoid conflict with international law.
• Jolly George Varghese and Another v. The Bank of Cochin [(1980) 2 SCC 360]: Referred to for stating that international covenants do not automatically become enforceable in India and require transformation into municipal law.
• Associated Cement Companies Ltd. v. Commissioner of Customs [(2001) 4 SCC 593]: Referred to for stating that Customs Valuation Rules, 1988 were framed keeping in view the GATT protocol and WTO agreement.
• State of Punjab and Another v. Devans Modern Breweries Ltd. and Another [(2004) 11 SCC 26]: Referred to for explaining the rationale behind the imposition of countervailing duty and stating that WTO members cannot frustrate promises by subsidizing their domestic industry.
• S&S Enterprise v. Designated Authority and Others [(2005) 3 SCC 337]: Referred to for stating that the imposition of anti-dumping duty is an outcome of GATT and that its purpose is to curb unfair trade practices.
• Commissioner of Customs, Bangalore v. G.M. Exports and Others [(2016) 1 SCC 91]: Referred to for stating that statutes made in response to international treaty obligations should be construed to give effect to those obligations.
• Entertainment Network (India) limited and Anr. v. Super Cassette Industries Ltd and Ors. [(2008) 13 SCC 30]: Referred to for stating that international conventions can be used for interpretation of domestic laws, to fulfill spirit of international obligation.

The court stated that the ratio of the decisions primarily relates to the requirement and mandate of the need for ‘act of transformation’ to be a part and parcel of domestic law, which confers a right to invocability.

The court also observed that the importers did not have a bona fide belief in the right they pleaded as various High Courts had already dismissed similar petitions.

How each authority was viewed by the Court?

The Court relied on the authorities to support its interpretation of the interplay between international treaties and domestic law, as well as the scope of the powers under the FTDR Act.

• Delhi International Airport Limited v. International Lease Finance Corporation and others [CITATION]: Used to establish that the notifications were issued by the Central Government and not the DGFT.
• Maganbhai Ishwarbhai Patel Etc. v. Union of India [CITATION]: Highlighted the distinction between the formation and performance of a treaty obligation, emphasizing that treaties do not have the force of law unless enacted by Parliament.
• Gramophone Company of India Ltd. v. Birendra Bahadur Pandey and Others [CITATION]: Used to establish that municipal law prevails over international law in case of conflict and that courts must interpret statutes to avoid conflict with international law.
• Jolly George Varghese and Another v. The Bank of Cochin [CITATION]: Used to clarify that international covenants do not automatically become enforceable in India and require transformation into municipal law.
• Associated Cement Companies Ltd. v. Commissioner of Customs [CITATION]: Cited to show that domestic rules can be framed keeping in view the GATT protocol and WTO agreement.
• State of Punjab and Another v. Devans Modern Breweries Ltd. and Another [CITATION]: Cited to show the economic rationale behind the imposition of countervailing duty and to state that WTO members cannot frustrate promises by subsidizing their domestic industry.
• S&S Enterprise v. Designated Authority and Others [CITATION]: Used to establish that the imposition of anti-dumping duty is an outcome of GATT and that its purpose is to curb unfair trade practices.
• Commissioner of Customs, Bangalore v. G.M. Exports and Others [CITATION]: Used to establish that statutes made in response to international treaty obligations should be construed to give effect to those obligations.
• Entertainment Network (India) limited and Anr. v. Super Cassette Industries Ltd and Ors. [CITATION]: Used to state that international conventions can be used for interpretation of domestic laws, to fulfill spirit of international obligation.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the interests of domestic producers with the obligations of international trade. The Court emphasized that the Central Government has the power to regulate imports under Section 3 of the FTDR Act and that this power is not curtailed by Section 9A.

The Court also considered the fact that the restrictions were imposed to protect domestic farmers from a fall in prices due to large-scale imports. The Court noted that the government has a responsibility to protect the interests of domestic producers and that it must be able to take measures to prevent serious injury to domestic industry.

The Court’s reasoning was based on a combination of legal interpretations and policy considerations. The Court emphasized that the Central Government has a responsibility to protect the interests of domestic producers and that it must be able to take measures to prevent serious injury to domestic industry.

Logical Reasoning

The court rejected the importers’ argument that the term “total quantity” should be interpreted as the quantity per licensee, stating that it refers to the total quantity of the commodity that could be imported.

The Supreme Court also rejected the importers’ contention that the notifications were vague and that the trade notice imposed a new criterion not envisaged by the notifications.

The court’s decision was based on a careful analysis of the relevant legal provisions, the facts of the case, and the policy considerations involved. The court’s reasoning was clear, logical, and well-supported by the authorities cited.

The Supreme Court observed, “The notification itself records that they had been issued by the Central Government in exercise of powers conferred under Article 77 of the Constitution.”

The Supreme Court also observed, “There is no ambiguity or vagueness in the notifications, relevant portions of which have been quoted above. Even otherwise the expression ‘total quantity’ cannot be construed as quantity per licence issued as the number of licences issued concerning the subject goods could be numerable.”

Implications

The Supreme Court’s judgment has significant implications for the regulation of foreign trade in India. The judgment clarifies that the Central Government has broad powers to regulate imports under Section 3 of the FTDR Act and that these powers are not limited by Section 9A. This means that the government can impose restrictions on imports, even if they do not meet the specific conditions for quantitative restrictions under Section 9A.

The judgment also clarifies the role of the DGFT in implementing the Foreign Trade Policy. The DGFT has the power to specify procedures for implementing the FTDR Act, and that these procedures can include the ‘actual user’ requirement.

The judgment also highlights the importance of balancing the interests of domestic producers with the obligations of international trade. The Supreme Court recognized that the government has a responsibility to protect the interests of domestic producers and that it must be able to take measures to prevent serious injury to domestic industry.

The judgment also clarifies that international treaties do not automatically become enforceable in India and require transformation into municipal law.

Conclusion

The Supreme Court’s judgment in the case of Union of India vs. Agricas LLP is a significant decision that clarifies the scope of the Central Government’s power to regulate imports under the FTDR Act. The court upheld the government’s decision to impose import restrictions on pulses, emphasizing the need to protect domestic farmers and industries.

The judgment underscores the importance of a robust legal framework for regulating foreign trade and the need for a balance between domestic and international trade obligations. It also reinforces the principle that international treaties do not automatically become enforceable in India and require incorporation into domestic law.

This case serves as a reminder of the complexities involved in regulating international trade and the need for a careful balancing of competing interests. It also highlights the importance of a strong and independent judiciary in upholding the rule of law and protecting the rights of all stakeholders.

The judgment provides valuable guidance for businesses involved in international trade, as well as for policymakers and legal professionals. It clarifies the legal framework for regulating imports and highlights the importance of complying with both domestic and international law.