Supreme Court Takes Action Over UPI Payment Charges, Notices Issued To Centre And RBI

Delhi: The Supreme Court on Monday heard a petition challenging the Central Government's decision to impose Merchant Discount Rate (MDR) on UPI payments. The court has currently refused to put an interim stay on the new fee structure but has issued notices to the concerned parties including the Central Government, Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI). A bench headed by Chief Justice Surya Kant asked to put the matter up for hearing after four weeks and file a counter affidavit. 

Why did the Supreme Court refuse to impose an interim stay?

The Supreme Court did not accept the demand to ban the MDR system at this stage. During the hearing, the bench indicated that the matter was mainly of a technical nature. The court has asked the centre to clarify the legal and practical basis of the new fee structure. Now other concerned parties including the Centre, will have to file their reply within four weeks. 

On which payments of UPI are preparations to impose MDR?

Under the Centre's new framework, MDR is to be applicable on certain person-to-merchant (P2M) UPI transactions from October 15, 2026. MDR has been set at 0.4 percent on eligible transactions above Rs 2,000 in the general category. Its maximum limit has been kept at Rs 300 for transactions of Rs 75,000 or more. 

However, this does not extend to all UPI payments. It has been said that the fee on person-to-person i.e. P2P transfer will be zero. It was also told by the government that under the new structure, about 96 percent of the transactions will remain out of the scope of charges.

What will be the rules for essential sectors like railways and petrol?

Separate arrangements have been made for essential and low margin sectors like railways, telecom, insurance, fuel and agricultural inputs. A flat MDR of Rs 5 has been fixed on eligible UPI transactions above Rs 2,000 in these areas. There is a provision of 0.02 percent MDR on payments made through mutual funds, securities and stock brokers and dealers, the maximum limit of which will be Rs 300.

Who has challenged the decision to impose MDR?

Advocate Anjan Dutta has filed a public interest litigation in the Supreme Court against this system. The petition challenges the Centre's notification of September 14 and the MDR framework announced on September 15. The petitioner argues that the fee regime has been brought in without adequate statutory protection, transparency and public consultation. The petition also questions the constitutional validity of the amended Section 10A of the Payment and Settlement Systems Act, 2007. 

How will the amount received from MDR be distributed?

According to the new structure, the amount received from MDR will be distributed among different parties associated with the UPI ecosystem. According to the government, its share will be given to the customer's bank, payment gateway, UPI app and sponsor bank. The purpose of this arrangement is said to be to share the costs of payment infrastructure associated with large merchant transactions.

Now what will happen next in the Supreme Court?

At present, there is no interim ban on the MDR system and the new structure of the centre is likely to be implemented from October 15. However, the final position in this matter will be clear after further hearing by the Supreme Court and response of the Centre, RBI and NPCI. The court has given four weeks' time to the concerned parties.