Delhi High Court Asks RBI To Mediate PayU's Dispute Over ₹6.88 Crore IRF Deductions

On 14 September, the Delhi High Court directed the Reserve Bank of India (RBI) to facilitate mediation between PayU Payments Private Limited and other stakeholders in a dispute concerning deductions from PayU's settlement accounts towards Interchange Reimbursement Fee (IRF) claims.

Justice Subramonium Prasad also ordered the RBI to depute a senior officer to mediate between the parties and attempt to resolve the dispute within 30 days. The Bench held:

“In the opinion of this Court, adopting this process will ensure that the future transactions by the parties in the scheduled course are not hampered pending mediation and in the opinion of this Court, the senior officer of the RBI would be the most competent person to assist the parties to come to a solution pending the mediation process.”

PayU, an RBI-authorised non-bank payment aggregator, approached the High Court challenging deductions from its ongoing settlements and escrow accounts towards IRF claims.

The dispute relates to allegedly incorrect Merchant Category Codes (MCCs) assigned to certain merchants onboarded by PayU. MCCs identify a merchant's principal business and determine the interchange fee payable by an acquiring bank to the issuing bank.

According to PayU, it only collected and verified merchants' business details, while the acquiring banks independently assigned the MCCs. It therefore disputed liability for any shortfall in interchange fees arising from incorrect MCCs.

Yes Bank had deducted amounts from PayU's settlements towards the alleged IRF liability. Although more than Rs. 5.95 crore was subsequently reversed, Rs. 6.88 crore remained withheld. PayU also apprehended further deductions in respect of pending IRF claims involving other acquiring banks.

The company also challenged Visa's private IRF Compliance Process, contending that such disputes must be resolved under Section 24 of the Payment and Settlement Systems Act, 2007. It sought the return of the withheld amount and injunctions against further deductions.

Considering that the payment system operates under the RBI's authorisation and supervision, the Court referred the parties to the RBI for mediation instead of directing them to undergo the usual pre-litigation mediation process. It observed:

“….this Court makes it clear that the matter is being referred to RBI only as an effort to find out a solution regarding creation and allocation of wrong MCCs and as to how the past transactions can be settled and to make sure that the transactions between the parties go smoothly under the system operated by Defendant No.6 till the adjudication of disputes either by this Court or by any other forum.”

The Bench clarified that the RBI would only mediate and facilitate a settlement and would not act as a dispute resolution authority under Section 24 of the Payment and Settlement Systems Act.

During the mediation, the parties must maintain status quo. Visa cannot issue final IRF decisions, acquiring banks cannot deduct amounts from PayU, and issuing banks cannot raise new MCC-related claims concerning past transactions.

For Plaintiff: Senior Advocates Rajiv Nayar, Sandeep Sethi, Rajeeve Mehra, Advocates Anush Raajan, Ayush Singh Dhami, Meghna Tandon, Palak Bhargava, Pratham Vir Agarwal, Naman Maheshwari,Shreya Sethi, Abhishek Butoliya, and Manas Tuli

For Defendants: Senior Advocates Rajsekhar Rao, Ashwini Mata, Akhil Sibal, Advocates Karthik Somasundaram, Sonam Gupta, Ankita Hariramani, Saumay Kapoor, Shiva Pande, Ritvika Poswal, Shankh Sengupta, Varuna Bhanrale, Vivek Krishnani, Tanya Hasija, Binsy Susan, Akshay Sharma, Pavitra Singh, Palak Kaushal, Ayushi Jain, Krishnesh Bapat, Neelam Rathore and Ashish Mahajan