DGFT Notification 19 ultra vires Section 5 of FTDR Act:HC

AIT News Network

NEW DELHI. In a major setback to DGFT; vide a landmark ruling Delhi High Court vide a recent ruling has struck down Notification No.19 dated 4.7.2006 issued by DGFT holding it as ultra vires Section 5 of  the Foreign Trade (Development and Regulation) Act, 1992.  

DGFT vide Notification No.19 had notified that the transitional arrangements notified under para 1.5 of the Foreign Trade Policy ,2006 shall not be applicable for export of pulses against irrevocable LC opened on or after 22.6.2006 as the decision of the Government prohibiting the export of pulses was announced and  got widely publicised on 22.6.2006  in the electronic and print media.

As a fallout of ruling Export of pulses will be allowed on  irrevocable Letter of Credits opened between 22.06.2006 and 27.06.2006   

T H E  F A C T S:

·          Petitioner No.1, a Company having its registered office in Mumbai, is a subsidiary of Petitioner No.2 (Agrocorp International Pte. Ltd.) which is a company incorporated in Singapore. It is the case of the petitioners that on 12.6.2006, the Trading Corporation of Pakistan (TCP) invited international bids for the supply of 150,000 MT of Chick Peas. Petitioner No.2 is stated to have submitted its bids some time in the first week of June 2006. On 17.6.2006 it was awarded two contracts for supply of 15,000 MT each of Chick Peas at USD 624 per MT and USD 650 per MT respectively. One of the terms of the contract was that the awardee of the contract was required to submit, by 22.6.2006, a Performance Guarantee equivalent to 5 per cent of the value of the contracted quantity. It was stated that on 20.6.2006 the Petitioner No.2 furnished a combined Performance Guarantee equivalent to 5 per cent of the value of the contracted quantity under the two contracts, through a bank in Singapore. The petitioners submitted that the contract for supply of Chick Peas to TCP in the agreed quantities stood concluded by this date.

·          The petitioners stated that from 21.6.2006 they started mobilizing Chick Peas for export and for this purpose engaged the services of Emmsons International Limited located in Delhi, to procure and arrange for the consignments to reach the port at Kandla from where they would be shipped either to the Bin Qasim Port or the Karachi Port.

·          Around this time, the Cabinet Committee on Pricing was engaged in finding means to tackle the seasonal rise in the prices of some essential commodities. The Central Government identified three essential commodities that were driving the prices up - wheat, sugar and pulses. At a Meeting of the Cabinet Committee on Pricing held on 22.6.2006, it was decided that there would be a ban on the export of pulses with a view to augmenting the supply side. It was decided to allow private players to import wheat and to a limited extent,sugar.

·          The Finance Minister met the Press soon after the Meeting of the Cabinet Committee on Pricing and announced these decisions. The newspapers of 23.6.2006 (photocopies of the news clippings have been placed on record) prominently announced the aforesaid decision of the Government of India. The Asian Age and the National Herald from New Delhi, both dated 23.6.2006, indicated in the headlines that the export of pulses was banned. The government claims that the electronic media also carried this news on 22.6.2006 itself.

·          Admittedly, the aforementioned ban on the export of pulses was not issued in the form of a notification simultaneously. That notification was issued on 27.6.2006, five days after the news of the ban appeared in the press.

·          Three days prior to the notification, on 24.6.2006, pursuant to the contract entered into between the TCP and Petitioner No.2, and the furnishing of the Performance Guarantee by the petitioners, two irrevocable letters of credit (LCs) were opened by the TCP in favour of Petitioner No.1 through M/s Habib Bank Limited for USD 10,237,500 and USD 9,828,000 respectively. On 27.6.2006, the petitioners filed their shipping bills, proforma invoices for export of the 30,000 MT of Chick Peas at Kandla. However, the Customs authorities did not permit the shipment to take place and orally asked the petitioners to seek clarification from the Director General of Foreign Trade (DGFT).
On 27.6.2006 by a notification the Central Government made amendments to the Policy prohibiting the export of several pulses.

T H E  R U L I N G: 

·          Petitioner No.1 is registered in Mumbai and Petitioner No.2 in Singapore and the shipment of the export is to be made from Kandla in Gujarat. However, the impugned Notification dated 4.7.2006, and the earlier Notification dated 27.6.2006 imposing the ban on export of Chick Peas were issued by the DGFT in Delhi. What is centrally challenged in this writ petition is the Notification issued by the DGFT in Delhi. The facts pleaded in the writ petition show that these facts are integral to the cause of action which arose in Delhi, namely, the issuance of Notification dated 4.7.2006 by the DGFT, Delhi. We accordingly hold that this Court has the jurisdiction to entertain this writ petition.

·          There is no power in the central government in terms of Section 5 of the Act to give retrospective effect to a notification issued under that provision.

·          There is no merit in the submission of the respondents that the ban imposed on the export of pulses became effective on 22.6.2006 when it was announced in the media and not on 27.6.2006 when it was actually notified in accordance with the mandatory requirements of Section 5 of the Act.

·          A delegated legislation cannot seek to override the main section under which it is made, in this case, Section 5. On this short ground it must be held that the impugned Notification dated 4.7.2006 is ultra vires Section 5 of the Act.

·          The public interest mantra cannot be repeated as a panacea for avoiding the consequence of mandatory legal provisions. It is not possible to adopt one yardstick when the Government seeks to grant a benefit and the other when it seeks to withdraw it.

·          we hold that the impugned Notification dated 4.7.2006 is ultra vires Section 5 of the Foreign Trade (Development and Regulation) Act, 1992  and strike down the said Notification as such

( Click here for full text of ruling AIT-2006-124-HC  )