New Delhi, Sep 28: The Supreme Court on Monday sought responses from the Centre and key payments authorities on a challenge to the proposed Merchant Discount Rate (MDR) on specified UPI merchant transactions above Rs 2,000, but declined to halt the framework’s implementation at this stage.
A Bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana issued notices to the Union government, Reserve Bank of India (RBI), National Payments Corporation of India (NPCI) and UPI & Services Steering Committee, seeking their responses within four weeks.
The challenge concerns the Centre’s September 14 Gazette Notification issued under Section 10A of the Payment and Settlement Systems Act, 2007, and the framework announced the following day for MDR on specified person-to-merchant (P2M) UPI payments. The charges are scheduled to take effect from October 15.
Additional Solicitor General N. Venkataraman told the Bench that 96 per cent of transactions would remain outside the charge and that fees for essential services would be capped at Rs 5. He said the levy would function as a settlement fee between payment aggregators and banks, with no share going to the government.
The proposed framework provides for a 0.4 per cent MDR on specified P2M transactions above Rs 2,000, capped at Rs 300 for transactions of Rs 75,000 and above, with separate rates for certain sectors.
The petitioner, advocate Anjan Datta, represented through advocate Ashutosh Dubey, has challenged the framework as arbitrary and discriminatory. The plea questions the statutory basis, transaction thresholds, sector-wise rates, monthly-receipt classification and the role of the UPI & Services Steering Committee in determining the framework.
The petitioner also sought an interim stay, arguing that implementation could give rise to corruption. The Bench declined that request and directed the parties to place relevant facts and material on affidavit.
The Centre has maintained that the framework is intended to support the financial sustainability of the UPI ecosystem. The Finance Ministry has said the fee would help fund infrastructure, cybersecurity and support for small merchants in Tier III-VI towns and rural areas.
The government has also maintained that UPI will remain free for customers and person-to-person transactions, regardless of value. Merchants receiving up to Rs 1 lakh monthly through UPI QR codes will continue to pay no charges, while more than 95 per cent of merchant payments below Rs 2,000 will remain free.
The RBI has similarly described MDR on large-value UPI transactions as a measure aimed at the long-term sustainability of the digital payments ecosystem while maintaining that users will not be charged for UPI transactions.
