First legal challenge against UPI MDR filed in Supreme Court

The PIL argues that a change of this nature, affecting citizens at large, cannot be brought in through a press release.

A Delhi lawyer has initiated the first legal challenge against the Centre's decision to charge merchants for accepting Unified Payments Interface (UPI) payments of ₹2,000 or more.

Advocate Anjan Datta, who filed a public interest litigation against the 2026 University Grants Commission (UGC) regulations and won a stay, filed a plea in the Supreme Court on Wednesday, seeking the quashing of the new merchant discount rate (MDR) framework.

"… impugned action bears directly upon the fundamental rights of an exceptionally large and largely unorganised class of citizens,” stated the 54-page writ petition seen by Mint.

Datta, who also challenged the Place of Worship (Special Provisions) Act, 1991, argued that a change of this nature, affecting citizens at large, cannot be brought in through a press release without clear legislative policy, standards, publication and regulatory supervision.

Legality questioned

The government announced on 15 September that a 0.4% MDR will be levied on UPI payments of ₹2,000 or more, with a cap of ₹300 on transactions of ₹75,000 or more. Person-to-person (P2P) UPI payments, however, will remain free.

Certain essential sectors will incur a flat ₹5 charge, while capital market transactions will incur a 0.02% MDR capped at ₹300. Small merchants receiving up to ₹1 lakh per month through UPI QR payments have also been excluded from the MDR framework.

One of Datta’s central arguments is that the notification has not created any legal ground and was imposed unequally and without a clear legal framework. According to the petition, this makes the levy arbitrary and discriminatory, and violates the constitutional rights to equality under Article 14 and to carry on a profession or business under Article 19(1)(g).

“This selective and unequal withdrawal, and the consequential fixation of a detailed, multi-tiered financial levy through a press release rather than a notified statutory instrument, and without any legislatively prescribed guidelines, criteria, or Gazette publication governing the rates, caps, or sectoral classifications so fixed, is assailed herein as manifestly arbitrary, discriminatory, and violative of Articles 14 and 19(1)(g),” read the petition.

In the plea, he said he was not challenging the government’s stated objective of maintaining and funding digital payments infrastructure. Rather, he questioned the legal route through which the new burden was created and the powers given to the executive to determine its contours.

Datta also challenged the distinction between UPI and RuPay. While UPI loses statutory no-charge protection above ₹2,000, RuPay debit card payments continue to enjoy the protection irrespective of transaction value.

He said that both are electronic payment instruments with overlapping consumer and merchant bases and argued that the distinction lacks an “intelligible differentia having a rational nexus” with the objective of promoting digital payments.

He also questioned the thresholds that were built into the MDR regime. He stated that there is no publicly disclosed data or determining principle supporting the ₹2,000 transaction threshold, ₹1 lakh monthly-receipt exemption for small merchants or the ₹75,000 level at which the MDR is capped at ₹300.

“The petitioner therefore seeks production of the complete record; quashing or suspension of the framework in so far as it imposes MDR above ₹2,000,” the petition said.

It also sought “transparent consultation”, protection for micro and small enterprises, safeguards against pass-through and digital exclusion, and independent review by the Reserve Bank of India and the Union government.

“A transaction of ₹2,001 attracts a percentage charge while one of ₹2,000 does not,” the petition said, arguing that such “cliff” treatment could distort payment behaviour and discriminate between similarly placed merchants.

About the Author

Yash Tiwari is a Mumbai-based journalist who reports on corporate and regulatory developments, with a focus on court-driven policy shifts and the intersection of law and public policy. He has been in the profession for two years. Before joining Mint, he worked at NDTV Profit as an assistant producer on the TV desk while also reporting, gaining experience across television and print journalism and combining reporting with production expertise.<br><br> Born in Kolkata, a city he remains deeply connected to, Yash has a keen interest in the technicalities of Indian law and aims to decode complex legal developments in a clear and accessible manner for readers. He is a graduate of the Asian College of Journalism, Chennai, where he completed his postgraduate diploma in journalism.<br><br> He closely follows politics and government policies, and has covered several state elections as a freelance journalist. His work is driven by the idea of making law less intimidating and more understandable for the general public.<br><br> When not at work, Yash can be found playing cricket, revisiting classic matches, or engaging in conversations about the evolving landscape of law and policy in India.