New Delhi [India], September 15 (ANI): The Delhi High Court has asked the Reserve Bank of India (RBI) to step in as a mediator and facilitator in a dispute involving PayU Payments Private Limited, Yes Bank, other acquiring banks and Visa over alleged wrong Merchant Category Codes (MCCs) and consequent Interchange Reimbursement Fee (IRF) claims.
Justice Subramonium Prasad directed the RBI to depute a senior officer well-versed in the subject to endeavour to find a solution within 30 days. The Court, however, made it clear that the RBI’s role would be confined to mediation and facilitation and that it would not act as a dispute-resolution authority under Section 24 of the Payment and Settlement Systems Act, 2007 (PSS Act).
As an interim arrangement, the High Court directed all parties to maintain status quo regarding claims arising out of past transactions. The Court ordered that Visa, the card network/system provider involved in the proceedings, shall not issue or pass any final IRF determination in respect of pending claims arising from past transactions against the acquiring banks.
Consequently, Yes Bank and the other acquiring banks have been directed not to make any deductions, debits or netting from PayU while the mediation process is underway. The Court further directed that Yes Bank, or any other issuing bank which is a party to the proceedings, shall not make any further claims for interchange income loss allegedly caused by MCC misclassification in transactions involving PayU before the filing of the suit, during the mediation process.
The High Court clarified that its interim directions would not interfere with the parties’ ordinary and usual transactions. The existing and future contractual and legal rights of the parties have expressly been left open, and the order will apply only to transactions in which the parties claim that wrong MCCs were assigned to merchants.
The Court also made clear that its directions were being issued without prejudice to the rights and contentions of all parties. It permitted the mediator to suggest any other solution which the parties may accept during the mediation and granted liberty to the parties to approach the Court if a different solution emerges and the interim order requires modification.
The dispute before the High Court centres on Merchant Category Codes (MCCs) assigned to merchants onboarded by PayU. An MCC is a four-digit code identifying a merchant’s principal line of business and is relevant for determining the applicable interchange fee payable by an acquiring bank to an issuing bank.
According to PayU, Yes Bank, which is an issuing bank, raised IRF claims before Visa against the acquiring banks, alleging that certain merchants whose transactions were processed through them had been assigned incorrect MCCs. This allegedly resulted in a shortfall in the interchange fee received by the issuing bank.
PayU’s stand is that it was not responsible for assigning the MCCs. It stated that its role was limited to collecting and verifying information about a merchant’s business and forwarding that information to the relevant acquiring bank. According to PayU, it is the acquiring bank which independently assesses the nature of a merchant’s business and assigns the appropriate MCC before allowing the merchant to process transactions.
The company approached the High Court after amounts were deducted from its ongoing settlement amounts towards the IRF claims. PayU claimed that Yes Bank had subsequently reversed an amount of more than Rs 5.95 crore, but continued to retain Rs 6,88,18,850. It also stated that IRF claims of approximately Rs 5.26 crore, Rs 27.30 crore and Rs 8.82 crore were pending against other acquiring banks.
PayU apprehended that further deductions could be made from its ongoing settlements or escrow accounts if the pending claims were determined against the acquiring banks.
A significant part of PayU’s challenge concerns Visa’s IRF Compliance Process. PayU argued that Visa had adopted its own private mechanism instead of following the statutory dispute-resolution framework under Section 24 of the PSS Act. The company contended that Section 24 requires disputes relating to the operation of a payment system to be dealt with through a properly constituted panel and that a determination under Visa’s private process could not legally form the basis for deductions from PayU’s escrow account.
Visa, on the other hand, submitted that it functions as a card system provider under its own rules, including the Visa Core Rules, Visa Product and Services Rules, IRF Compliance Guide and Visa Supplemental Requirements. It argued that the IRF claims were being processed based on submissions made voluntarily by the acquiring banks and issuing bank and that Visa had no direct role in deductions made from PayU’s settlement accounts. Visa further submitted that any recovery by the acquiring banks from PayU depended on the bilateral agreements between PayU and those banks.
The High Court noted that the RBI has granted authorisations to PayU as a payment aggregator and to Visa as a card payment network, both under the PSS Act. It observed that the parties therefore operate within the regulatory framework and authorisations of the RBI.
The Court also noted that the precise issue of who had assigned the allegedly wrong MCCs remained unclear, even though those alleged errors had resulted in IRF determinations and subsequent deductions.
The High Court considered the requirement of pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015. Referring to the Supreme Court’s ruling in Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., the Court noted that pre-litigation mediation is mandatory in commercial disputes where urgent interim relief is not contemplated. It also observed that the Court can refer parties to mediation even after institution of the suit.
However, considering that the entire payment system in the present case operates under RBI authorisations and supervision, the High Court found it more appropriate to request the RBI itself to assist the parties in finding a solution to the dispute over the alleged wrong MCCs and the resulting consequences.
The High Court has not finally decided whether PayU’s suit is maintainable or whether the dispute must ultimately be taken to another forum. The Court specifically clarified that the RBI’s mediation role would not take away PayU’s appellate rights. Even if the High Court subsequently concludes that the suit is not maintainable and that the parties must pursue another mode of adjudication, the company’s appellate rights would remain unaffected.
The Court also referred to Section 24 of the PSS Act, which provides a mechanism for resolving disputes between system participants. Under the provision, a system provider is required to provide for a panel of at least three system participants, other than the parties to the dispute, to decide disputes connected with the operation of the payment system. Certain disputes can thereafter be referred to the RBI, whose decision in that statutory process is final and binding.
The High Court, however, stressed that its present reference to the RBI is not a reference under Section 24. Instead, the RBI has been requested to help the parties arrive at a practical solution while the legal issues remain open. The Court said this approach would ensure that future transactions are not disrupted and could also help find a solution to similar problems involving wrong MCCs that may arise in the future. The matter has been listed before the High Court on October 27, 2026. (ANI)
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