SC refuses to pause UPI charges above Rs 2,000; issues notice to govt, RBI

The Supreme Court on Monday refused to pause, for now, the Centre's decision to impose a merchant discount rate on specified UPI person-to-merchant transactions above Rs 2,000 from October 15.The court, however, agreed to examine the challenge to the move and asked the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) to respond within four weeks.The case came up on a public interest litigation filed by advocate Anjan Datta against the Centre's September 14 notification and the MDR framework announced on September 15. The government has ended nearly six years of fully free UPI payments by introducing a 0.4 per cent fee on transfers above Rs 2,000 made to merchants through the platform, while keeping person-to-person transactions and small payments outside the charge.A bench of Chief Justice Surya Kant and Justices Joymalya Bagchi and V Mohana issued notice to the Centre, the RBI and the NPCI on the plea. Appearing for the Centre, Additional Solicitor General N Venkataraman told the bench that 96 per cent of people using the gateway were exempt. "The Government of India is not taking even a single rupee out of it," he said.The bench asked the Centre to file its counter affidavit explaining the basis for imposing a fee on transfers above Rs 2,000 made to merchants through the UPI platform. Venkataraman said charges for essential services were capped at Rs 5 and added, "It is neither a tax nor a fee." The bench then observed, "We need all these facts in a short affidavit. It will help us understand better. It is less a legal issue and more a technical issue."During the hearing, the court said it would like to see the legal source for implementing the charge. "Is it a tax or a fee? If not a fee, then what is the executive basis for making this expropriation?" the bench asked.The law officer replied that it was not an expropriation and said it was a settlement fee between payment aggregators and banks. "The government is several steps away from this money," he said. After notice was issued, the petitioner's counsel requested, "Please stay it till then", but the bench declined to grant interim relief.Under the framework, the MDR on payments of Rs 75,000 and above will be capped at Rs 300. Essential and thin-margin sectors such as railways, telecom, insurance, fuel and agricultural inputs will pay a flat MDR of Rs 5 per transaction above Rs 2,000.Payments into mutual funds, securities and through stockbrokers and dealers will attract 0.02 per cent MDR, also capped at Rs 300. Person-to-person transfers, which account for 37 per cent of UPI's transaction volume and 70 per cent of its transaction value, will continue to attract zero charges regardless of size.The plea alleged that the levy had been introduced without adequate statutory safeguards, transparency or public consultation. It challenged the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, alleging that it gave unguided powers to the executive to decide which electronic payment modes would receive no-charge protection."Declare that no MDR or analogous compulsory charge may be imposed or recovered merely on the strength of a press release or FAQs absent a duly authorised, authenticated and published statutory instrument," the plea said.The petitioner also questioned the distinction between UPI transactions and RuPay debit card payments, saying the notification continued no-charge protection for RuPay debit cards without any monetary ceiling. The plea said the framework was arbitrary and discriminatory and could hurt merchants, especially those with low margins, while also raising concerns about indirect consumer burden and digital exclusion.It sought cancelling or suspension of the framework to the extent that it imposed MDR on UPI transactions above Rs 2,000, or, alternatively, a reconsideration after transparent consultation, publication of empirical data, an impact assessment and safeguards for micro and small enterprises."Direct that any future MDR classification be based on relevant considerations including merchant turnover, statutory MSME status, actual margins, geography and ability to bear the cost and avoid cliff-edge treatment unsupported by evidence," the plea said.In sum, the Supreme Court has not halted the new MDR regime due to start on October 15, but it has sought responses from the Centre, the RBI and the NPCI on the legal and technical basis of the move, while the petitioner continues to challenge the framework and its impact on UPI merchant payments above Rs 2,000.- Ends