Note: The Indian Export Control Order of 1968 required that the export of Mica scrap and waste be routed ("canalized") through the state-owned Minerals and Metals Trading Corporation of India Ltd. (the Corporation). The Corporation issued a Press Notice on the canalization process, requiring, effective 24 January 1972, that an irrevocable letter of credit be opened by foreign buyers in favor of the Corporation. The Corporation later postponed the effective date, allowing private exports where a letter of credit was opened before 31 March 1972, and shipments were made before 30 June 1972.

Petitioner challenged the canalization scheme, arguing that it was an unconstitutional and arbitrary interference in private industry. Petitioner specifically charged that the effective date was arbitrary since letters of credit bear no "reasonable relation" to the goals of a canalization scheme and that the extension to 31 March was solely to benefit favored parties.

The Supreme Court, in an opinion by Ray, CJ., dismissed all Petitioner's claims, upholding the canalization scheme as a legitimate promotion of general public interest. The Court ruled that an effective date referencing letters of credit would prevent "ingenious devices of creating specious contracts". The Court suggested that specious contracts could be backdated to circumvent the public interest. The Court also found that the extension to 31 March was to reduce the hardship of some traders who did not understand the regulation and opened letters of credit after 24 January and not to arbitrarily benefit favored individuals.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.