The Supreme Court is set to hear on Monday a petition challenging the Centre’s decision to introduce a Merchant Discount Rate (MDR) on certain UPI person-to-merchant transactions exceeding Rs 2,000. The plea questions both the legal foundation of the decision and the process through which it was introduced.
After almost six years of completely free UPI payments, the government has introduced a 0.4 per cent fee on merchant transactions above Rs 2,000 through UPI, effective October 15. Person-to-person transfers and smaller-value payments will remain exempt from the charge.
According to the Supreme Court’s September 28 cause list, the case will be heard by a bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana.
Under the new system, MDR will be limited to Rs 300 for transactions worth Rs 75,000 or more. Sectors such as railways, telecommunications, insurance, fuel and agricultural inputs, which typically operate on essential services and narrow margins, will be charged a fixed MDR of Rs 5 per transaction for payments exceeding Rs 2,000.
Transactions involving mutual funds, securities, stockbrokers and dealers will carry an MDR of 0.02 per cent, subject to the same Rs 300 maximum. Person-to-person transactions, which make up 37 per cent of UPI transaction volumes and 70 per cent of their value, will continue to remain free irrespective of the transaction amount.
The public interest litigation, filed by advocate Anjan Datta, challenges the Centre’s September 14 notification and the MDR structure announced on September 15, which is scheduled to come into force on October 15. The petition alleges that the fee was introduced without sufficient statutory safeguards, transparency or consultation with the public.
The plea also questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. It argues that the provision gives the executive excessive discretion to determine which electronic payment systems should receive protection from charges. The petition states that an MDR or similar mandatory fee should not be imposed solely on the basis of a press release or FAQs without a properly authorised, authenticated and published statutory instrument.
The petitioner has further challenged the different treatment given to UPI and RuPay debit card transactions, noting that the notification continues to provide unlimited no-charge protection for RuPay debit card payments. According to the plea, this distinction is arbitrary and discriminatory and could adversely affect merchants, particularly those operating on low margins. It also warns of a possible indirect financial burden on consumers and a greater risk of digital exclusion.
The petition seeks the cancellation or suspension of the framework insofar as it imposes MDR on UPI transactions above Rs 2,000. Alternatively, it has requested that the framework be reconsidered through a transparent consultation process, supported by published empirical data and an impact assessment, with specific protections for micro and small businesses.
The plea has also sought directions that any future classification for MDR purposes should consider factors such as merchant turnover, statutory MSME status, actual profit margins, geographical location and the ability to absorb the additional cost. It argues against sharp payment thresholds or “cliff-edge” treatment that is not supported by evidence.
The Centre, along with other authorities including the Reserve Bank of India, has been named as a respondent in the case.
The Supreme Court hearing will thus examine the government’s new MDR regime for higher-value UPI merchant transactions, with the petition seeking scrutiny of its statutory basis, the classification of transactions and its potential effects on merchants and users.
