Bench led by CJI Surya Kant issues notice on PIL challenging the merchant fee on UPI payments above Rs 2,000
The Supreme Court on Monday declined to stay the Centre’s decision to impose a Merchant Discount Rate (MDR) on specified UPI person-to-merchant transactions above Rs 2,000, but issued notice on a petition challenging the move and asked the government and others to file their replies within four weeks.
A bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V. Mohana agreed to hear the plea and directed the Centre, the Reserve Bank of India, the National Payments Corporation of India and others to file counter affidavits. When the petitioner’s counsel asked the court to stay the measure until then, the bench refused. Describing the issue, the bench observed that it was “less a legal and more a technical issue.”
What the government told the court
Additional Solicitor General N. Venkataraman, appearing for the Centre, told the bench that 96 per cent of people using the gateway were exempt from the charge. The Solicitor General also informed the court that the government would not collect the MDR, calling it merely a service charge levied by aggregators and banks. Reports say the court is also looking at the legal nature of the charge, including whether it should be classified as a fee, a tax or another kind of levy.
The challenge
The public interest litigation was filed by advocate Anjan Datta, who argues that the framework was introduced without sufficient statutory safeguards, transparency or public consultation. The petition also questions the validity of amendments to the Payment and Settlement Systems Act, 2007, claiming they give broad powers to decide which digital payment systems remain free of charge. It contends that the levy could hurt small merchants operating on thin margins and that costs may be passed on to consumers, and seeks the withdrawal or suspension of the framework.
How the new charges work
The government announced earlier this month that a 0.4 per cent fee will apply to transfers above Rs 2,000 made to merchants through UPI from October 15, ending nearly six years of fully free UPI payments. The MDR will be capped at Rs 300 for payments of Rs 75,000 and above.
Essential and thin-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs, will pay a flat Rs 5 per transaction above Rs 2,000. Payments involving mutual funds, securities and stockbrokers will attract a lower MDR of 0.02 per cent, also capped at Rs 300.
Person-to-person transfers, which account for 37 per cent of UPI’s transaction volume and around 70 per cent of its value, will continue to carry no charge, as will small payments.
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The refusal to stay the MDR is a positive move, but is it necessary to hear the matter further? UPI is the world’s single largest payment interphase, developed and implemented by experts from finance and technological fields. For sustaining and expanding the system the provisions of funds is a must, how to generate those is a matter best left to experts, unless there an obvious criminality, the SC intervention will only delay the process given the results of the judicial interventions.