PIL Supreme Court: Examines UPI MDR Over ₹2000 Challenge

• A Public Interest Litigation has been filed in the Supreme Court challenging the Centre's framework for imposing Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000.
• The challenge targets a Gazette Notification from September 14, 2026, and a framework announced on September 15, 2026, under Section 10A of the Payment and Settlement Systems Act, 2007.
• The petitioner argues the framework is arbitrary, discriminatory, and violates constitutional articles due to its implementation via press release without proper legislative guidelines or cost studies.
• The new MDR structure includes a 0.4% charge above ₹2,000, with caps and special rates for certain sectors, but maintains free P2P and P2M transactions up to ₹2,000.
• Critics contend the charges will burden low-margin businesses, distort market behavior, and discriminate between merchants, despite government assertions that costs cannot be passed to consumers.

The petitioner asserts that these actions violate Articles 14 and 19(1)(g) of the Constitution, further contending that the framework suffers from excessive and impermissible delegation of essential legislative and fiscal functions to an unincorporated Steering Committee operating outside any Gazette notification.

India's Supreme Court is poised to examine a significant public interest litigation (PIL) challenging the central government's recent decision to levy a Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions exceeding ₹2,000. This legal action targets a Gazette Notification issued on September 14, 2026, alongside a framework announced the following day, September 15, 2026, which permits these charges on specified person-to-merchant (P2M) UPI transactions.

The PIL, filed by advocate Anjan Datta through Advocate-on-Record Ashutosh Dubey, marks a pivotal moment for the digital payments landscape. It represents the first instance since the introduction of a zero-MDR regime in December 2019 that the statutory 'no-charge' protection for UPI transactions above a certain threshold has been withdrawn. Notably, RuPay-powered debit cards continue to benefit from zero MDR without any monetary ceiling, a point of contention raised in the petition.

The challenge specifically targets the government's notification under Section 10A of the Payment and Settlement Systems Act, 2007 (PSS Act), as amended by the Taxation and Other Laws (Amendment) Act, 2026. While the petitioner acknowledges the legitimate objective of maintaining a secure and resilient payment infrastructure, the core of the legal argument centers on the *manner* in which this new compulsory payment burden has been established and distributed.

The petition argues that the framework was introduced without the publication of a complete operative instrument, a clear statutory source, an underlying cost study, minutes, methodology, safeguards, or an enforceable anti-pass-through mechanism. This alleged lack of transparency and due process leads to claims that the selective and unequal withdrawal of the no-charge protection, coupled with the fixation of a detailed, multi-tiered financial levy through a press release rather than a notified statutory instrument, is manifestly arbitrary and discriminatory. The petitioner asserts that these actions violate Articles 14 and 19(1)(g) of the Constitution, further contending that the framework suffers from excessive and impermissible delegation of essential legislative and fiscal functions to an unincorporated Steering Committee operating outside any Gazette notification.

Under the Centre's public announcement, the new Merchant Discount Rate UPI transactions India framework outlines several key provisions: person-to-person (P2P) transfers remain free, as do P2M payments up to ₹2,000. However, a 0.4% MDR is now applicable to transactions exceeding ₹2,000. For very high-value transactions, those of ₹75,000 and above, the charge is capped at ₹300. Specific essential sectors are subject to a flat ₹5 charge, while capital-market payments attract a 0.02% rate. Furthermore, P2PM merchants whose monthly receipts do not exceed ₹1 lakh are exempt from these charges.

Despite the government's assertion that merchants cannot pass this MDR onto consumers, the PIL Supreme Court UPI MDR over ₹2000 challenge contends that this cost will inevitably impact businesses. For low-margin traders, service providers, and digitally dependent businesses, the petition argues that the charge will either integrate into their pricing structure, reduce working capital, or compel them to refuse UPI payments or split transactions to avoid the fee. The plea highlights that a mere directive against an expressly recognized economic consequence does not eliminate the underlying financial burden. The petitioner also points out that the ₹2,000 transaction threshold, the ₹1 lakh monthly-receipt classification, the differential sector rates, and the ₹75,000 cap lack support from publicly disclosed data or determining principles, creating arbitrary 'cliffs' that can distort behavior and discriminate between similarly situated merchants.

The outcome of this Anjan Datta UPI MDR PIL will have far-reaching implications for the future of digital payments in India, particularly concerning the legality of P2M UPI transactions MDR. It will determine whether the government's method of implementing significant financial policy changes through press releases, rather than formal statutory instruments, can withstand constitutional scrutiny. The case raises fundamental questions about transparency, fairness, and the potential for regulatory frameworks to inadvertently create economic disadvantages for certain segments of the business community. The constitutional challenge UPI charges, specifically under Articles 14 and 19(1)(g), underscores the importance of this proceeding for ensuring equitable and non-discriminatory economic policies.

This Payment and Settlement Systems Act 2007 challenge could set a crucial precedent for how future changes to India's rapidly evolving digital payment ecosystem are introduced and regulated. The Supreme Court's decision will not only clarify the legal standing of the current MDR framework but also influence the operational costs and compliance obligations for countless merchants across the country, particularly those heavily reliant on UPI for high-value transactions.

Lawyers and compliance officers should closely monitor the Supreme Court's proceedings regarding the challenge to the UPI MDR framework for transactions over ₹2000. The outcome will determine the legality of these charges, potentially impacting business operational costs, pricing strategies, and compliance obligations for merchants in India, especially those relying heavily on UPI for high-value transactions.

Source: Original reporting via LiveLaw