New Delhi, 28 September

The Supreme Court on Monday refused to grant an interim stay on the imposition of merchant discount rate (MDR) on specified UPI person-to-merchant transactions above Rs 2,000 coming into effect from 15 October.

The top court agreed to examine the challenge to the imposition of MDR and asked the Centre, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) to respond within four weeks to the plea.

The apex court was hearing a public interest litigation (PIL) filed by advocate Anjan Datta challenging the Centre's decision to impose MDR on specified Unified Payments Interface (UPI) person-to-merchant transactions above Rs 2,000. The plea has challenged the Centre's September 14 notification and the MDR framework announced on September 15.

Ending nearly six years of fully free UPI payments, the government has introduced a 0.4 per cent fee on transfers worth over Rs 2,000 made to merchants through the UPI platform from October 15 while explicitly ring-fencing everyday person-to-person transactions and small payments from any 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 seeking their responses on the plea.

Additional Solicitor General N Venkataraman, appearing for the Centre, 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," the law officer said.

The bench asked the Centre to file its counter affidavit explaining the basis for the move to impose a fee on transfers worth over Rs 2,000 made to merchants through the UPI platform.

Venkataraman said the charges for essential services are capped at Rs 5.

"It is neither a tax nor a fee," he said.

"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," the bench observed.

During the hearing, the top court said it would like to see the legal source of 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 said.

The law officer said it was not an expropriation.

He said it was a settlement fee between the payment aggregators and the banks.

"The government is several steps away from this money," he said.

After the bench issued notice on the plea, the counsel appearing for the petitioner said, "Please stay it till then".

The bench refused to grant any interim stay on the Centre's decision to impose MDR.

The MDR will be capped at Rs 300 for payments of Rs 75,000 and above.

Essential and thin-margin sectors -- 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 (P2P) transfers, which make up 37 per cent of UPI's transaction volume and 70 per cent of its transaction value, will continue to attract zero charges, irrespective of size.

The plea alleged that the levy has been introduced without adequate statutory safeguards, transparency or public consultation.

It challenges the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007, alleging that it gives unguided powers to the executive to decide which electronic payment modes would receive the 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," it said.

The petitioner has also questioned the distinction between UPI transactions and RuPay debit card payments, pointing out that the notification continues the no-charge protection for RuPay debit cards without a monetary ceiling.

The plea alleges that the framework is arbitrary and discriminatory, and may adversely affect merchants, particularly those with low margins, while also raising concerns over possible indirect consumer burden and digital exclusion.

It has sought the quashing or suspension of the framework insofar as it imposes an MDR on UPI transactions above Rs 2,000.

Alternatively, it has sought a reconsideration of the framework after transparent consultation, publication of empirical data and an impact assessment, besides 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.