The Supreme Court has declined to grant an interim stay on the Centre’s decision to introduce Merchant Discount Rate (MDR) on certain UPI transactions. The court has issued notices to the Centre, Reserve Bank of India (RBI), National Payments Corporation of India (NPCI) and other concerned parties.
A three-judge bench comprising Chief Justice of India Surya Kant and Justices Jaimalya Bagchi and V. Mohan agreed to hear a Public Interest Litigation (PIL) filed by advocate Anjan Dutta. The respondents have been directed to file their response affidavits within four weeks.
Court Calls Issue More Technical Than Legal
During the hearing, the Supreme Court observed that the matter appeared to involve technical aspects in addition to legal questions. The Centre informed the court that under the proposed framework, around 96% of transactions processed through payment gateways would remain exempt from charges.
For essential services, the MDR would be capped at ₹5 per transaction, according to the Centre’s submission.
PIL Challenges Legal Basis of Charges
The petition has challenged the introduction of the charges, alleging that they were imposed without adequate legal safeguards, transparency and public consultation. It also challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007.
The petition argues that the provision gives the executive authority to determine which electronic payment systems should remain fee-free without providing clear legislative guidelines.
Proposed MDR Structure
Under the proposed framework, from October 15, a 0.4% MDR would apply to certain person-to-merchant UPI transactions above ₹2,000, subject to a maximum charge of ₹300 for transactions of ₹75,000 or more.
Essential and low-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs would attract a flat MDR of ₹5 for transactions above ₹2,000. Payments involving mutual funds, securities and stockbrokers would attract an MDR of 0.02%, capped at ₹300.
Person-to-person (P2P) UPI transfers would continue to carry zero charges.
The Centre has said the MDR revenue would be distributed among participants in the UPI ecosystem, including banks, payment gateways and UPI apps.