Plea in SC challenges MDR on UPI payments above Rs 2,000

A public interest litigation (PIL) has been filed in the Supreme Court challenging the Centre's decision to impose a merchant discount rate (MDR) on specified UPI person-to-merchant transactions above Rs 2,000, with the petitioner alleging that the levy was introduced without adequate statutory safeguards, transparency or public consultation.

The plea, filed by advocate Anjan Datta, challenges the Centre's September 14 notification and the MDR framework announced on September 15, which is scheduled to come into effect from October 15.

Under the new framework, an MDR of 0.4 per cent will apply to general person-to-merchant (P2M) UPI transactions exceeding Rs 2,000, subject to a cap of Rs 300 for transactions of Rs 75,000 and above.

A flat MDR of Rs 5 will apply to transactions above Rs 2,000 in specified essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs. Capital-market transactions will attract an MDR of 0.02 per cent, capped at Rs 300, according to the petition.

UPI transactions of up to Rs 2,000 and all person-to-person transfers will remain free. Small merchants receiving up to Rs 1 lakh per month through UPI QR codes will also be exempted, the petitioner said.

The plea challenges the constitutional validity of amended Section 10A of the Payment and Settlement Systems Act, 2007, alleging that it gives the executive unguided powers to determine which electronic payment modes would receive protection from charges.

The petitioner has also questioned the manner in which the rates, transaction thresholds, caps and sectoral classifications were fixed. The plea alleges that the complete operative instrument prescribing the charges has not been published in the Official Gazette.

It further questions the distinction between UPI transactions and RuPay debit-card payments, noting that the notification continues the no-charge protection for RuPay debit cards without a monetary ceiling.

The petitioner has alleged that the framework is arbitrary and discriminatory and could adversely affect merchants, particularly those operating on low margins. It has also raised concerns over a possible indirect burden on consumers and digital exclusion.

The plea seeks quashing or suspension of the framework to the extent that it imposes MDR on UPI transactions above Rs 2,000.

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

The petitioner has also sought an independent review of the framework by the Reserve Bank of India and the Union government.