UPI MDR case: Supreme Court refuses interim stay on levy, asks Centre to explain rationale

The Supreme Court on Monday (September 28) refused to grant an interim stay on the Centre’s decision to impose Merchant Discount Rate (MDR) on specified UPI transactions above ₹2,000.

A Chief Justice of India Surya Kant-led bench, however, agreed to hear a public interest litigation (PIL) challenging the levy and issued notice to the Finance Ministry, directing the Centre to explain the rationale for imposing MDR on UPI transactions.

The bench also questioned the scope of executive power to levy MDR.

The PIL, filed by advocate Anjan Dutta, challenges the notifications imposing MDR on UPI transactions above ₹2,000, with the new framework scheduled to take effect from October 15.

What is changing for UPI payments?

Under the new framework, a 0.4 per cent MDR will apply to UPI payments of more than ₹2,000 made to merchants.

The charge will be capped at ₹300 for transactions of ₹75,000 and above.

However, person-to-person (P2P) UPI transfers will continue to remain free, irrespective of the transaction value. According to the plea, P2P transactions account for 37% of UPI transaction volume and 70% of its transaction value.

Certain sectors have also been given a separate MDR structure. Payments above ₹2,000 in sectors such as railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of ₹5 per transaction.

For transactions involving mutual funds, securities, stockbrokers and dealers, the MDR has been set at 0.02%, subject to a cap of ₹300.

Why is the framework being challenged?

The PIL challenges the Centre’s September 14 notification and the MDR framework announced on September 15, alleging that the levy was introduced without adequate statutory safeguards, transparency or public consultation.

The petitioner has also challenged the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, arguing that it gives the executive broad powers to determine which electronic payment modes would remain protected from charges.

The plea has also questioned the different treatment of UPI and RuPay debit card transactions, pointing out that the no-charge protection for RuPay debit cards continues without a monetary ceiling.

What happens next?

The Supreme Court has not stayed the implementation of the MDR framework at this stage. The Centre will now have to explain the basis for the decision in an affidavit, following which the court will consider the matter further.

The petitioner has sought quashing or suspension of the MDR framework insofar as it imposes charges on UPI transactions above ₹2,000.

Alternatively, the plea seeks reconsideration of the framework after transparent consultation, publication of empirical data and an impact assessment, along with safeguards for micro and small enterprises.

The Centre and other entities, including the Reserve Bank of India, have been made respondents in the matter.

-With PTI inputs