Delhi HC Asks RBI To Mediate PayU’s Dispute With Banks, Visa

The Delhi High Court has asked the RBI to mediate a dispute involving Prosus-backed fintech platform PayU Payments, YES Bank, ICICI Bank, other acquiring banks, and Visa over interchange reimbursement fee (IRF) claims arising from the alleged misclassification of merchant category codes (MCCs).

The court directed the parties to maintain the status quo on claims arising from past transactions and barred acquiring banks from making further deductions from PayU’s settlements while the mediation is underway.

It also restrained Visa from issuing final determinations on pending IRF claims concerning past transactions.

The order was passed by a single-judge bench of Justice Subramonium Prasad after the court heard arguments for four consecutive days on the maintainability of PayU’s suit and its plea for interim relief.

The court asked the RBI to depute a senior officer familiar with the payments sector to help the parties reach a resolution within 30 days. The matter will next be heard on October 27.

The development was first reported by Bar & Bench.

What’s The Dispute?

The dispute relates to IRF claims raised by ICICI Bank before Visa against YES Bank and three other acquiring banks for allegedly assigning incorrect MCCs to certain merchants.

An MCC is a four-digit code identifying a merchant’s principal line of business. It is used to determine the interchange fee payable by an acquiring bank to an issuing bank.

PayU told the court that it does not assign MCCs. The payment aggregator said it collects and verifies merchants’ business information and forwards it to the relevant acquiring bank, which independently assesses the business and assigns the appropriate code.

According to PayU, YES Bank deducted amounts from its ongoing settlements towards the IRF liability. Although the bank subsequently reversed more than ₹5.95 Cr, it continues to retain ₹6.88 Cr, the court order said.

PayU has sought the return of ₹6.88 Cr, along with annual interest of 18% from the date of deduction.

The payment aggregator has also flagged the possibility of further deductions. According to the order, ICICI Bank has raised claims of about ₹5.26 Cr, ₹27.3 Cr, and ₹8.82 Cr against three other acquiring banks.

The court observed that it was unclear who assigned the allegedly incorrect MCCs that led to the claims and subsequent deductions.

Court Puts Claims On Hold

PayU has also challenged Visa’s IRF compliance process, arguing it does not comply with the dispute-resolution mechanism prescribed under Section 24 of the Payment and Settlement Systems Act, 2007.

Visa, however, told the court that the claims were being processed under its rules and compliance framework. It said it had no role in deductions from PayU’s settlement accounts, as any recovery would depend on the agreements between PayU and the acquiring banks.

The court said the RBI was best placed to help resolve the matter as the payment ecosystem involved was operating under authorisations granted by the central bank and under its supervision.

“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,” the court said.

However, the court clarified that the RBI would act only as a mediator and facilitator, and not as a dispute-resolution body under Section 24 of the PSS Act.

During the mediation, Visa cannot issue any final determination on the pending IRF claims concerning past transactions against YES Bank and the three other acquiring banks. The banks, in turn, cannot deduct, debit, or recover the disputed amounts from PayU.

ICICI Bank and any other issuing bank involved in the proceedings have also been barred from raising further claims for interchange-income losses arising from alleged MCC misclassification in PayU transactions conducted before the suit was filed.

The directions apply only to transactions in which merchants were allegedly assigned incorrect MCCs. The court said the order would not affect routine transactions between the parties or their existing and future contractual and legal rights.

The post Delhi HC Asks RBI To Mediate PayU’s Dispute With Banks, Visa appeared first on Inc42 Media.