Supreme Court refuses to stay UPI MDR charge, issues notice to RBI, NPCI

The central government's decision to apply a Merchant Discount Rate, or MDR, on UPI payments has triggered widespread debate. The decision has been challenged in the Supreme Court, and on Monday the court issued notice to the Reserve Bank of India and the National Payments Corporation of India in the matter, meaning both bodies will now have to present their case before the court. However, the court declined to grant an immediate stay on the new MDR structure, so the new rule will take effect from October 15 as scheduled, and the court hearing will not change that date for now.

Under the new rule, select person-to-merchant UPI payments above Rs 2,000 will attract an MDR of 0.4 percent. For payments of Rs 75,000 or more, the charge will be capped at a maximum of Rs 300, regardless of how large the transaction is. The charge will not be collected separately from the customer; merchants will be responsible for the MDR, so the amount will not be deducted directly from the paying customer.

Merchant payments up to Rs 2,000 are exempt from this MDR. Person-to-person UPI transfers, of any amount, will also remain free, so there will be no charge for sending money to friends or relatives. According to the government, this change will not affect around 96 percent of merchant transactions, since most everyday small transactions fall below this threshold. The government has also announced a separate concession for small businesses.

Different rates have been set for some essential and low-margin sectors. Payments above Rs 2,000 related to railways, telecom, insurance, fuel and agricultural inputs will attract a uniform MDR of Rs 5. Payments related to mutual funds, securities, and stock brokers and dealers will attract an MDR of 0.02 percent, capped at a maximum of Rs 300, so these sectors will have lower rates than the general 0.4 percent.

Advocate Anjan Dutta has filed a public interest litigation in the Supreme Court against the new framework. The petition challenges the central government's notification of September 14 and the MDR framework announced on September 15. It also questions the constitutional validity of the amendment made to Section 10A of the Payment and Settlement Systems Act, 2007, so the court will hear arguments not only on the MDR rates but on the government's legal authority to impose the charge.

The fate of the rule will now depend on the next hearing in the case and on the responses from RBI and NPCI. Until then, the MDR structure announced from October 15 will remain in effect, and both customers and merchants will have to transact under the new rule.