NO STAY ON UPI TRANSACTIONS, Supreme Court Demands Centre's Response

The Supreme Court on Monday directed the Union Government to file a detailed affidavit explaining the executive basis and legal framework behind introducing transaction charges on high-value commercial Unified Payment Interface (UPI) payments above ₹2,000.

A three-judge bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi, and Justice V Mohana issued notices to the Centre, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI). However, the top court refused to stay the operation of the Ministry of Finance notifications that allow payment service providers to collect a Merchant Discount Rate (MDR) on commercial transactions starting October 15.

Court Questions Legal Basis for Expropriation

Hearing a writ petition filed by Advocate Anjan Datta, the bench closely questioned the government on the statutory foundation of the executive decision. Justice Bagchi asked what the precise character of the receipt was and requested clarification on the source of legal incidence under Section 269SU of the Income Tax Act, which compels merchants meeting turnover thresholds to provide digital payment options.

"Is it a tax or a fee? If not a fee, what is the executive basis for making this expropriation? What is the service?" Justice Bagchi asked during proceedings.

Chief Justice Surya Kant noted that the issue involves complex operational mechanisms and stated that the court requires all factual details on record before proceeding further.

Centre Defends 0.4% Merchant Discount Rate

Appearing for the Union Government, Additional Solicitor General N Venkataraman assured the court that the government itself is not taking a single rupee from the fee. He clarified that the charge functions strictly as an internal settlement fee between acquiring banks and payment aggregators to cover the technical infrastructure cost of processing high-value digital transfers.

The government argued that the new system will leave roughly 96 per cent of all merchant transactions completely unaffected, as small merchants receiving up to ₹1 lakh per month and transactions under ₹2,000 will remain completely free of charges. Person-to-person (P2P) transfers will also carry no fee regardless of the amount.

Under the framework notified by the Finance Ministry on September 14 and 15, commercial transactions above ₹2,000 will carry a standard MDR of 0.4 per cent, capped at ₹300 for payments reaching or exceeding ₹75,000. Essential services like fuel, agricultural inputs, railways, insurance, and telecommunications will face a flat charge of ₹5.

Petitioner Warns of Consumer Burden and Cash Reversion

Advocate Anjan Datta urged the bench to grant an immediate interim stay on the notifications, warning that commercial establishments will inevitably pass the operational costs onto retail consumers. He argued that imposing fees on high-value digital transactions risks pushing merchants back toward unrecorded cash deals, increasing black money circulation across domestic markets.

The bench declined to grant an interim order, choosing instead to review the formal counter-affidavits from the Finance Ministry, RBI, and NPCI before taking up the matter for further hearing.