The Supreme Court on Monday declined to put an interim stay on the Centre’s decision to introduce Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions above ₹2,000. At the same time, the court sought responses from the Centre, Reserve Bank of India (RBI), National Payments Corporation of India (NPCI) and the UPI Steering Committee on a petition challenging the notifications that paved the way for the new charging mechanism. The new framework is scheduled to come into effect from October 15.
A bench headed by Chief Justice of India Surya Kant and comprising Justices Joymalya Bagchi and V Mohana considered the challenge to the Centre’s decision. During the proceedings, the bench observed that the matter appeared to be “less a legal and more a technical issue”, indicating that the functioning and architecture of the digital payment ecosystem would be an important part of the court’s consideration.
The petition challenges the government notifications permitting MDR on specified commercial UPI transactions above the ₹2,000 threshold. The plea seeks judicial scrutiny of the legal basis for introducing the new mechanism after several years in which UPI payments operated without MDR.
Representing the Centre, Additional Solicitor General N Venkataraman told the bench that the overwhelming majority of users would remain outside the impact of the new arrangement. He submitted that 96 per cent of people using the payment gateway were exempt.
The government's position is that the revised framework does not introduce a charge on ordinary person-to-person UPI transfers. According to the Finance Ministry, P2P transactions will continue to remain completely free irrespective of the amount involved. Merchant payments up to ₹2,000 and transactions covered under the zero-MDR framework for small merchants will also remain free, leaving around 96 per cent of P2M transactions unaffected.
Under the announced framework, a 0.4 per cent MDR will apply to specified merchant transactions above ₹2,000. For general transactions, the charge is subject to a maximum of ₹300 for payments of ₹75,000 and above. Certain essential and thin-margin sectors have been provided a separate flat MDR structure.
The Centre has also maintained that MDR is neither a government tax nor a charge collected by the government or NPCI. Instead, it is distributed among participants in the payment ecosystem, including banks and payment application providers, with the stated objective of supporting the continued operation and expansion of UPI.
The Supreme Court's decision not to grant an interim stay means that the proposed framework has not been halted at this stage. However, the notices issued to the Centre, RBI, NPCI and the UPI Steering Committee ensure that the legal challenge will now receive a detailed response from the authorities responsible for the payment system and its regulatory framework.
The case comes at a significant point for India's digital payments ecosystem. UPI has become a major channel for everyday transactions, while the government has simultaneously been examining mechanisms to ensure the long-term sustainability of the infrastructure supporting the system. The Centre has described the MDR framework as an enabling measure intended to balance the expansion of digital payments with the costs involved in maintaining the ecosystem.
For consumers, the immediate distinction is important: the proposed MDR is aimed at specified person-to-merchant transactions above ₹2,000, rather than all UPI payments. The Supreme Court's latest order leaves the framework in place for now while seeking responses from the concerned authorities, setting the stage for further proceedings on the petition challenging the new regime.
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