http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9  

CASE NO.: Writ Petition (civil)  4695 of 2006

PETITIONER: Union of India & Ors.

RESPONDENT: M/s. Asian Food Industries

DATE OF JUDGMENT: 07/11/2006

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T  

[Arising out of S.L.P. (Civil) No. 17008 of 2006] WITH CIVIL APPEAL NO.     4696                  OF 2006 [Arising out of S.L.P. (Civil) No. 17558 of 2006]

S.B. SINHA,  J :

       Leave granted.

       Both the appeals involving common questions of law and fact were  taken up for hearing together and are being disposed of by this common  judgment.

       We would, however, notice the fact involved in both the matters  separately.

FACT RE: M/S. ASIAN FOOD INDUSTRIES

       Respondent herein is exporter of various kinds of pulses and grains.  It  received orders for supply of 20331 MT of pulses from the Overseas  Importers of Middle East wherefor several contracts were entered into.  The  said contracts were executed between 22.4.2006 and 2.05.2006.  It received  US $294942 being approximately 20% of the contract amount by way of  advance towards the said supply from the importers on 9.5.2006.  Shipment  of 20 containers out of the 107 containers consisting of 415 MT took place  during the period between 22.06.2006 and 24.06.2006.  The remaining 87  containers were cleared and Let Export Orders dated 23.06.2006, 24.06.2006  and 26.06.2006 were issued by the custom authorities at Kandla Port.  Bills  of lading were also issued therefor.

       In the meanwhile, a purported decision was taken by the Central  Government to ban export of pulses on 22.06.2006.  The said decision is  said to have been widely reported in the electronic media and print media,  but the notification banning the export of pulses was issued by the Central  Government only on 27.06.2006 in purported exercise of its power under  Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (for  short "the 1992 Act") wherein the Central Government prohibited export of  various goods mentioned therein for a period of six months from the said  date, the relevant portion whereof reads as under:

"S.O.(E) In exercise of the powers conferred by Section 5 of the  Foreign Trade (Development & Regulation) Act, 1992 (No. 22  of 1992) read with Para 1.3 and Para 2.1 of the Foreign Trade  Policy, 2004-2009, the Central Government hereby makes the  following amendments in the ITC(HS) Classifications of the  Export and Import items, 2004-2009 as amended from time to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9  

time. 2. With immediate effect the following new entry may be  inserted after entry at Sl. No. 44 in Chapter 7 of Table B under  Schedule 2 of ITC(HS): Sl.  No. Tariff  Item HS Code Unit Item Description Export  Policy Nature of  Restriction 44 A *** *** ***

   07131000 Kg. Peas (Pisum  sativum) Prohibited Not permitted to  be exported.     07132000 Kg. Chickpeas  (garbanzos) Beans  (Vigna spp.,  Phaseolus spp.): Prohibited Not permitted to  be exported. *** 3. The above amendment shall remain in force for a period of  six months from the date of its issue and shall not apply to  imports already effected against Advance  Licences/Authorisations issued prior to the date of issue of this  notification. 4. This issues in Public Interest."

       Superintendent (Customs) on or about 28.6.2006 directed the Kandla  Port Trust that no further consignment be allowed to be shipped which has  passed out of the charge of the customs.  However, the Assistant Traffic  Manager in a communication made to M/s. Intermark Shipping Agency Pvt.  Ltd. dated 29.06.2006 informed that even if goods have been cleared by  issuance of Let Export Orders, the same should not be loaded on the  shipping vessels in view of the said prohibition.   

       Another notification was issued by the Central Government on  4.07.2006 purported to be under Section 5 of the 1992 Act permitting export  of pulses against irrevocable letter of credit opened prior to 22.06.2006, the  relevant portion whereof reads as under:

"S.O.(E) In exercise of the powers conferred by  Section 5 of the Foreign Trade (Development &

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9  

Regulation) Act, 1992 (No. 22 of 1992) read with  Para 1.3 and Para 2.1 of the Foreign Trade Policy,  2004-2009, the Central Government hereby makes  the amendment in para 3 of Notification No 15  dated 27th June 2006, to include the following  sentence, at the end of the said para: Further the transitional arrangements notified  under para 1.5 of the Foreign Trade Policy, 2006  shall not be applicable for export of pulses against  irrevocable Letters of Credit 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. 2. This issues in Public Interest."

       The respondents, however, addressed various correspondences with  the authorities to grant permission to shift the 87 containers of vessels in  view of the notification dated 4.07.2006 but the same was refused.  A writ  petition questioning the said action on the part of the authorities filed by  them in the Gujarat High Court has been allowed by reason of the impugned  judgment.

FACT RE: M/S. AGRI TRADE INDIA SERVICES P. LTD.

       M/s. Agri Trade India Services P. Ltd., Respondent No. 1 herein was  awarded a contract by Trade Corporation of Pakistan for supply of 3000 MT  of chick peas.  An irrevocable letter of credit was opened in favour of the  respondent on 24.06.2006.  On 27.06.2006, the respondent filed shipping  invoices and bill with customs authorities for export of chick peas.  In view  of notification dated 27.06.2006, the Kandla Port Trust issued instructions  that loading of chick peas would not be permitted.  Thereafter, a notification  dated 4.7.2006 was also issued purported to be under Section 5 of the 1992  Act permitting export of pulses against irrevocable letter of credit opened  prior to 22.06.2006.

       Inter alia questioning the validity of notification dated 4.07.2006, the  respondents filed a writ petition before the Delhi High Court which was  marked as W.P. (C) No. 11691-11692 of 2006.  By reason of the impugned  judgment dated 18.08.2006, the said writ petition has been allowed.

STATUTORY PROVISIONS

       Before adverting to the questions raised in these appeals, we may  notice the statutory provisions operating in the field.

       The Parliament enacted the Customs Act, 1962 (for short "the 1962  Act") to consolidate and amend the law relating to customs.  Section 11 of  the 1962 Act empowers the Central Government to prohibit importation and  exportation of goods.  Section 16 provides for date for determination of rate  of duty and tariff valuation of export goods in the following terms:

"16. Date for determination of rate of duty and  tariff valuation of export goods.-- (1) The rate of duty and tariff valuation, if any,  applicable to any export goods, shall be the rate  and valuation in force,\027 (a) in the case of goods entered for export under  section 50, on the date on which the proper officer  makes an order permitting clearance and loading  of the goods for exportation under section 51 ; (b) in the case of any other goods, on the date of  payment of duty. (2) The provisions of this section shall not apply to  baggage and goods exported by post."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9  

       Section 39 of the 1962 Act prohibits the master of a vessel not to  permit loading of any export goods other than baggage and mail bags, until  an order has been given by the proper officer granting entry-outwards to  such vessel.   

       Chapter VII of the 1962 Act inter alia provides for the procedures for  clearance of export of goods.  Section 50 postulates that the exporter of any  goods shall make entry thereof by presenting to the proper officer in the case  of goods to be exported in a vessel or aircraft, a shipping bill and, while  presenting, shall at the foot thereof make and subscribe to a declaration as to  the truth of its contents.  Section 51 provides for clearance of goods for  exportation in the following terms:

"51. Clearance of goods for exportation.-- Where the proper officer is satisfied that any goods  entered for export are not prohibited goods and the  exporter has paid the duty, if any, assessed thereon  and any charges payable under this Act in respect  of the same, the proper officer may make an order  permitting clearance and loading of the goods for  exportation."

       The Parliament also enacted the 1992 Act to provide for the  development and regulation of foreign trade by facilitating imports into and  augmenting exports from India and for matters connected therewith or  incidental thereto.   

       "Export" has been defined to mean taking out of India any goods by  land, sea or air.  Section 3 of the 1992 Act empowers the Central  Government to make provisions by order published in the Official Gazette  for the development and regulation of foreign trade by facilitating imports  and increasing exports.  Sub-section (2) of Section 3 thereof empowers the  Central Government to make provisions 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.  Sub-section (3) of Section 3 provides that all goods to  which an order under Sub-section (2) applies would be deemed to be the  goods of import or export of which has been prohibited under Section 11 of  the 1962 Act and all the provisions of that Act shall have effect accordingly.   

       Section 5 of the 1992 Act provides that the Central Government may  from time to time formulate and announce, by notification in the Official  Gazette, the export and import policy and in the like manner amend that  policy.

POLICY

       The Central Government announced its Foreign Trade Policy in  exercise of its power conferred upon it under Section 5 of the 1992 Act by a  notification dated 7th April, 2006.  The said policy was issued in public  interest.   

       Chapter 1A of the said policy also provides for legal framework.   Clause 1.5 thereof reads as under:

"1.5 In case an export or import that is permitted  freely under this Policy is subsequently subjected  to any restriction or regulation, such export or  import will ordinarily be permitted  notwithstanding such restriction or regulation,  unless otherwise stipulated, provided that the  shipment of the export or import is made within  the original validity of an irrevocable letter of  credit established before the date of imposition of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9  

such restriction."

       Clause 2.4 of the policy empowers the Director General of Foreign  Trade to specify the procedures required to be followed by an exporter in  any case or class of cases for the purpose of implementing the provisions of  the 1992 Act, the Rules and the Orders made thereunder and the said policy.   Such procedures were to be included in the Handbook which would be  published by means of a public notice and such procedures may in the like  manner be amended from time to time.  It was stated:

"The Handbook (Vol.1) is a supplement to the  Foreign Trade Policy and contains relevant  procedures and other details.  The procedure of  availing benefits under various schemes of the  Policy are given in the Handbook (Vol.1)"

       The Handbook of Procedures which inter alia supplements the  Foreign Trade Policy was also issued on 7th April, 2006 upon giving a public  notice therefor.  It contains nine chapters.  Chapter 9 comprises of  miscellaneous matters.  Paragraph 9.12 lays down the manner in which date  of shipment/ dispatch of exports would be reckoned.  It inter alia provides:

"However, wherever the Policy provisions have  been modified to the disadvantage of the exporters,  the same shall not be applicable to the  consignments already handed over to the Customs  for examination and subsequent exports upto the  date of the Public Notice.

Similarly, in such cases where the goods are  handed over to the customs authorities before the  expiry of the export obligation period but actual  Exports take place after expiry of the export  obligation period, such exports shall be considered  within the export obligation period and taken  towards fulfillment of export obligation."

HIGH COURT JUDGMENTS

       Whereas the Gujarat High Court invoking Paragraph 9.12 of the  Handbook and having regard to the fact that the customs authorities cleared  and permitted the loading of the goods and moreover the bill of lading had  also been filed, opined that the respondents were entitled to export the goods  in terms of the policy decision despite the said notification dated 27.06.2006,  the Delhi High Court declared the notification dated 4.07.2006 as ultra vires.

SUBMISSIONS

       Mr. Vikas Singh, learned Additional Solicitor General for Union of  India, has raised the following contentions:

(i)     Clause 1.5 of the Foreign Trade Policy would not apply to a case  where the export of goods are totally being prohibited and not merely  regulated or restricted.   (ii)    Having regard to the definition of export and in particular the  provision of Section 51 of the 1962 Act, the procedures laid down  thereunder as envisaged under Sections 16 and 39 must be complied  and they having not been complied with, the impugned judgment of  Gujarat High Court cannot be sustained. (iii)   Although the notification dated 4.07.2006 was wrongly worded but as  thereby benefit was sought to be conferred on those who were not  aware of the ban before 22.06.2006 and had opened letters of credit  prior thereto were exempted from operation of the said notification,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9  

the order of prohibition shall be effective even if a concluded contract  had been arrived at for export of goods.

       The learned counsel for the respondents, on the other hand, submitted:

(i)     In view of the Foreign Trade Policy issued by the Central Government  under Section 5 of the 1992 Act, the amendments carried out therein  shall only have a prospective effect and not a retrospective effect.   (ii)    As the Handbook of Procedures lays down supplemental provisions to  the Foreign Trade Policy issued by the Director General of Foreign  Trade in exercise of its power under the 1992 Act, the purported  prohibition issued under the notification dated 27.06.2006 would not  apply to a case where the formalities contained in Section 51 of the  1962 Act had been complied with. (iii)   Clause 1.5 of the Foreign Trade Policy having provided for protection  to those who were holders of letter of credit, the retrospective effect  purported to have been given in terms of the notification dated  4.07.2006 was unconstitutional being hit by Article 14 of the  Constitution of India.

ANALYSIS

       Would the terms ’restriction’ and ’regulation’ used in Clause 1.5 of  the Foreign Trade Policy include prohibition also, is one of the principal  questions involved herein.   

       A citizen of India has a fundamental right to carry out the business of  export, subject, of course to the reasonable restrictions which may be  imposed by law.  Such a reasonable restriction was imposed in terms of the  1992 Act.

       The purport and object for which the 1992 Act was enacted was to  make provision for the development and regulation of foreign trade inter alia  by augmenting exports from India.  While laying down a policy therefor, the  Central Government, however, had been empowered to make provision for  prohibiting, restricting or otherwise regulating export of goods.

       Section 11 of the 1962 Act also provides for prohibition.  When an  order is issued under Sub-section (3) of Section 3 of the 1992 Act, the export  of goods would be deemed to be prohibited also under Section 11 of the  1962 Act and in relation thereto the provisions thereof shall also apply.

       Indisputably, the power under Section 3 of the 1992 Act is required to  be exercised in the manner provided for under Section 5 of the 1992 Act.   The Central Government in exercise of the said power announced its Foreign  Trade Policy for the years 2004-2009.  It also exercised its power of  amendment by issuing the notification dated 27.06.2006.  Export of all  commodities which were not earlier prohibited, therefore, was permissible  till the said date.

       The implementation of the said policy was to be made in terms of the  procedures laid down in the Handbook.  The provisions of the 1992 Act, the  Foreign Trade Policy and the procedures laid down thereunder, thus, provide  for a composite scheme.  In implementing the said provisions of the scheme,  in the event an order of prohibition, restriction or regulation is passed, the  provisions of the 1962 Act mutatis mutandis would apply.   

       Section 50 of the 1962 Act provides for entry of goods for  exportation.  It enjoins a duty upon an exporter to make entry thereof by  presenting a shipping bill to the proper officer in a vessel or aircraft.  On  receipt of the shipping bill, the proper officer has to arrive at its satisfaction  that (i) the export of goods is not prohibited; (ii) the exporter has paid the  duty assessed thereon and charges payable thereunder in respect of the said  goods.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9  

       Once he arrives at the said satisfaction, he will make an order  permitting clearance and loading of the goods for exportation.

       The scheme of the Foreign Trade Policy postulates that when the  policy provisions are amended which are disadvantageous to the exporters,  the modification would not be attracted.

       It furthermore lays down that although actual export had not taken  place but in the event goods are handed over to the custom authorities before  expiry of the export obligation period but actual export takes place after  expiry thereof, the same shall be considered within the export obligation and  taken towards fulfillment of such obligation.

       Section 51 of the 1962 Act, therefore, does not say that unless and  until the shipment crosses the international border, the notification imposing  prohibition shall be attracted.

       Different stages for the purpose of the said Act would, therefore, be  different.  For interpretation of the provisions of the 1992 Act and the policy  laid down as also the procedures framed thereunder vis-‘-vis the provisions  of the 1962 Act, the rate of custom duty has no relevance.  What would be  relevant for the said purpose would be actual permission of the proper  officer granting clearance and loading of the goods for exportation.  As soon  as such permission is granted, the procedures laid down for export must be  held to have been complied with.

       Strong reliance has been placed by the learned Additional Solicitor  General upon a decision of this Court in Principal Appraiser (Exports),  Collectorate of Customs and Central Excise and Others v. Esajee Tayabally  Kapasi, Calicut [(1995) 6 SCC 536] wherein this Court was concerned with  the change in the rate of duty and in that context the construction of Sections  16(1), 39 and 51 of the 1962 Act fell for its consideration.  In relation to the  rate of duty it was held that the date of "entry outwards" would be the  relevant date with reference to which the rate of custom duty on the exported  duty is to be worked out.

       In that case, the goods were cleared for a vessel known as S.S. Neils  Maersk.  However, for want of space therein goods were shut out.   Necessary space for exporting those were secured in another vessel named  S.S. P’Xilas wherefor fresh shipping bill was filed on 9.08.1996.  It was in  the peculiar fact of that case, this Court opined that the rate of export duty  prevalent as on 9.08.1996 would be leviable stating:

"...It becomes thus clear that the shipping bill as  well as the ultimate entry outwards for the goods  concerned sought to be exported must have  reference to the vessel through which such goods  are to be exported. Therefore, before any goods are  exported out of Indian territorial waters which  vessel is to be utilised for exporting them, becomes  a relevant consideration. The shipping bill  concerned has to be lodged with reference to a  given vessel which is to carry these goods out of  the Indian territorial waters and in connection with  such a vessel the entry outwards has to be obtained  and only thereafter the master of the vessel should  allow the loading of the goods for being exported  out of India. The rate of duty payable on such  exported goods would, therefore, be the rate of  duty that was prevalent at the time when entry  outwards through a given vessel is obtained. There  cannot be an entry outwards in connection with a  vessel which does not actually carry such goods  for the purpose of export. In the facts of the  present case, therefore, conclusion is inevitable

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9  

that earlier entry outwards for the vessel S.S. Neils  Maersk was an ineffective entry outwards for the  purpose of computing the rate of customs duty of  export on the goods in question. Only the  subsequent entry outwards for vessel S.S. PXilas  which actually carried these goods out of Indian  territorial waters and effected the export of these  goods was the only relevant and operative entry  outwards and the rate of duty prevalent on the date  of the said entry outwards for vessel S.S. PXilas  was the only effective rate of duty payable on the  export of these goods. Consequently it must be  held that the respondent has made out no case for  refund of Rs 4444.96 for which he lodged the  claim."

       We may notice that a Constitution Bench of this Court in Gangadhar  Narsingdas Agarwal v. P.S. Thrivikraman and Another [(1972) 3 SCC 475]  opined that Section 16 of the 1962 Act speaks of the fictional date only in  relation to the order of date of entry outwards of the vessel, but the issue  with which we are concerned did not arise therein.  The fundamental and  statutory right of an exporter, in that case, were not sought to be taken away.

       Esajee Tayabally Kapasi (supra), therefore, has no application in the  instant case.

       Reliance has also been placed on Union of India and Others v. M/s. C.  Damani & Co. and Others [1980 (Supp) SCC 707] wherein the vires of  Exports (Control) Fifteenth Amendment Order, 1979 prohibiting pre-ban  commitments was in question.  It was held that there was no ground to  discredit the policy.  The question raised therein, viz., the effect of failure to  honour foreign contracts owing to change in law imposing ban on goods  covered thereby whether would attract the plea of frustration of contract was  not decided stating:

"...This contention may have to be considered here  or elsewhere, but, if we may anticipate our  conclusion even here, this question is being skirted  by us because the kismet of this case can be settled  on other principles. The discipline of the judicial  process forbids decisional adventures not  necessary, even if desirable."

       We may, however, notice that M/s. C. Damani (supra) was explained  by this Court in State Trading Corporation of India Ltd. v. Union of India  and Others [1994 Supp (3) SCC 40].  It is not necessary for us to advert  thereto as the said judgment has no application in the instant case.

       We are, however, not oblivious of the fact that in certain  circumstances regulation may amount to prohibition.  But, ordinarily the  word "regulate" would mean to control or to adjust by rule or to subject to  governing principles [See U.P. Cooperative Cane Unions Federations v.  West U.P. Sugar Mills Association and Others [(2004) 5 SCC 430] whereas  the word "prohibit" would mean to forbid by authority or command.  The  expressions "regulate" and "prohibit" inhere in them elements of restriction  but it varies in degree.  The element of restriction is inherent both in  regulative measures as well as in prohibitive or preventive measures.

       We may, however, notice that this Court in State of U.P. and Others v.  M/s. Hindustan Aluminium Corpn. and others [AIR 1979 SC 1459] stated  the law thus:

"It appears that a distinction between regulation  and restriction or prohibition has always been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9  

drawn, ever since Municipal Corporation of the  City of Toronto v. Virgo. Regulation promotes the  freedom or the facility which is required to be  regulated in the interest of all concerned, whereas  prohibition obstructs or shuts off, or denies it to  those to whom it is applied. The Oxford English  Dictionary does not define regulate to include  prohibition so that if it had been the intention to  prohibit the supply, distribution, consumption or  use of energy, the legislature would not have  contended itself with the use of the word  regulating without using the word prohibiting or  some such word, to bring out that effect."           However, in Talcher Municipality v. Talcher Regulated Market  Committee and Another [(2004) 6 SCC 178], it was opined that regulation is  a term which is capable of being interpreted broadly and it may amount to  prohibition.  [See also K. Ramanathan v. State of Tamil Nadu and another,  AIR 1985 SC 660]

       The terms, however, indisputably would be construed having regard  to the text and context in which they have been used.  Section 3(2) of the  1992 Act uses prohibition, restriction and regulation.  They are, thus, meant  to be applied differently.  Section 51 of the 1962 Act also speaks of  prohibition.  Thus, in terms of the 1992 Act as also the policy and the  procedure laid down thereunder, the terms are required to be applied in  different situations wherefor different orders have to be made or different  provisions in the same order are required therefor.

       We, however, need not dilate on the said question as in the case of  Agri Trade India Services (P) Ltd., the requirements of Section 51 of the  1962 Act had not been complied with whereas in the case of Asian Foods  Industries, it was done.

       The Delhi High Court, however, in our view correctly opined that the  notification dated 4.07.2006 could not have been taken into consideration on  the basis of the purported publicity made in the proposed change in the  export policy in electronic or print media.  Prohibition promulgated by a  statutory order in terms of Section 5 read with the relevant provisions of the  policy decision in the light of Sub-section (2) of Section 3 of the 1992 Act  can only have a prospective effect.  By reason of a policy, a vested or  accrued right cannot be taken away.  Such a right, therefore, cannot a  fortiori  be taken away by an amendment thereof.   

       In construing such a prohibitory order, whereas the rule of strict  construction must be followed, the interpretation which subserves the  intention of the Central Government as laid down in the policy as well as in  the procedure should be given effect to.  A statute as is well known may  have to be construed in the light of the subordinate legislations framed  thereunder.  When subordinate legislation has been framed by the same  authority which exercises the power under the policy, the intention of such  policy maker must be found out from the words used therein albeit having  regard to the rights of the exporters which are sought to be protected  thereby.

       We, therefore, are of the opinion that whereas the judgment of the  Gujarat High Court must be upheld, that of the Delhi High Court, albeit for  different reasons, cannot be sustained.   

       For the reasons aforementioned, whereas Civil Appeal arising out of  SLP (C) No. 17008 of 2006 is dismissed with costs and counsel’s fee  assessed at Rs. 1,00,000/-, Civil Appeal arising out of SLP (C) No. 17558 of  2006 is allowed and the parties shall pay and bear their own costs.