Everyone in the chain is licensed by the Reserve Bank, and nobody could say who assigned the wrong merchant codes. Rather than send the parties to ordinary pre-litigation mediation, the Court asked the regulator itself to mediate, made clear it is not adjudicating, and froze the deductions for thirty days.
New Delhi: The Delhi High Court has requested the Reserve Bank of India to depute a senior officer to act as a mediator and facilitator in a dispute between a payment aggregator, its acquiring banks, an issuing bank and a card network, and has in the meantime restrained the acquiring banks from making any deductions from the aggregator’s escrow account on account of interchange claims [PayU Payments Private Limited v. Yes Bank Limited and Others].
Justice Subramonium Prasad passed the order after hearing arguments over four consecutive days on the maintainability of the suit and on interim relief. The Court made clear that the Reserve Bank is being asked to mediate and facilitate, not to function as the dispute resolution body contemplated under Section 24 of the Payment and Settlement Systems Act, 2007.
How the money moves
The plaintiff is a non-bank payment aggregator authorised by the Reserve Bank, offering merchants a single integration through which customers can pay by card, net banking, UPI or wallet. Four of the defendants are acquiring banks, responsible for processing, authenticating and settling card transactions of the merchants the plaintiff has onboarded, and for remitting net settlement amounts into its escrow accounts. Another defendant is an issuing bank, and the sixth is the card network operating the payment system in India.
When a customer pays on a merchant’s site, the instruction is routed through the aggregator’s platform to the acquiring bank through the card network. The acquiring bank transfers the amount, after charging the interchange fee, into the aggregator’s statutorily regulated escrow account, from which the merchant is paid.
At the centre of the case sits a four-digit number. A Merchant Category Code identifies a merchant’s principal line of business, and it determines the interchange fee the acquiring bank pays the issuing bank. Assign the wrong code and the issuing bank receives less than it should.
The dispute
The issuing bank raised Interchange Reimbursement Fee claims before the card network against the four acquiring banks, alleging that certain merchants whose transactions those banks processed had been given incorrect codes, producing a shortfall in the interchange fee it received. Those claims were taken up under the network’s own IRF Compliance Process, to which the aggregator was not a party.
The money nonetheless came out of the aggregator’s account. One acquiring bank deducted from ongoing settlements, later reversing over Rs 5.95 crore but retaining Rs 6,88,18,850. Claims against the other three acquiring banks stand at roughly Rs 5.26 crore, Rs 27.30 crore and Rs 8.82 crore, and the aggregator apprehends that if those are determined adversely the same recovery route will follow.
Its case is that it has no role in assigning the codes at all. It collects and verifies a merchant’s business information and forwards it to the acquiring bank, and it is the acquiring bank that independently assesses the business and assigns the code. It also challenged the legality of the network’s private compliance process, contending that Section 24 of the PSS Act requires disputes between system participants about the operation of a payment system to go before a properly constituted statutory panel, and that a determination reached outside that process cannot ground deductions from a regulated escrow account.
The network’s answer
Senior counsel for the card network submitted that it acts under its own rules, that the claims are processed on voluntary submissions by the acquiring banks and the issuing bank, and that the plaintiff does not come into it. It does not debit the plaintiff’s settlement accounts, does not issue settlement instructions and does not deal with the plaintiff at all.
Whether the acquiring banks can recover from the aggregator following a determination, it was argued, turns entirely on the bilateral Master Service Agreements between them, which have their own adjudication mechanisms and to which the network is not a party.
The Section 12A problem
Being a commercial suit, the plaint attracted Section 12A of the Commercial Courts Act, 2015, and the aggregator had applied for exemption from pre-litigation mediation. The Court recorded the settled position from Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., in which the Supreme Court traced the history of the provision and held that pre-litigation mediation is compulsory, may be given a go-by only in rare circumstances, and that a plaint may be rejected for non-compliance.
It also noted that this does not bar a court from referring parties to mediation after institution of the suit, as the Supreme Court itself did in Novenco Building & Industry A/S v. Xero Energy Engg. Solutions (P) Ltd.
The Court acknowledged the aggregator’s concern that it is obliged to maintain a minimum balance in the escrow account and may face civil and criminal exposure if the balance falls below it, though it did not dwell on the point given the maintainability objections raised by all the defendants.
The regulator as mediator
The Court’s route out of the impasse turns on a feature of the case it identified early: the aggregator holds authorisations from the Reserve Bank as a payment aggregator and as a Bharat Bill Payment Operating Unit, and the card network is authorised as a card payment network. Both, the Court observed, operate within the four corners of the Reserve Bank’s regime under the PSS Act.
The Court also recorded a candid difficulty at the heart of the case, that it is not clear who assigned the wrong codes that produced the claims and the deductions that followed.
On that footing it held that rather than sending the parties for ordinary pre-litigation mediation, it would be more appropriate to request the Reserve Bank to act as mediator, even though it is not an authority named under the Legal Services Authorities Act, 1987 for that purpose. After setting out Section 24 of the PSS Act in full, the Court drew the boundary of the exercise:
“It is made clear that RBI will only act as a mediator and facilitator and not as a dispute resolution body as contemplated under Section 24 of the PSS Act.”
Answering the aggregator’s objection that a reference to the Reserve Bank would cost it an appeal, the Court held that the reference is only an effort to find a solution on how the wrong codes arose, how past transactions can be settled and how transactions can continue smoothly pending adjudication, and that even assuming the suit is ultimately found not maintainable, the appellate right is not taken away.
The Reserve Bank has been requested to depute a senior officer well-versed with the field to attempt a solution within thirty days.
The interim arrangement
For the duration of the mediation, the Court directed that parties maintain status quo on claims arising out of past transactions already raised by the issuing bank before the card network. The network is not to issue or pass any final IRF determination on the pending claims arising out of past transactions against the four acquiring banks, and those banks are consequently not to make any deductions, debits or netting from the plaintiff.
The issuing bank, or any other issuing bank party to the proceedings, is not to make further claims for interchange income loss arising from code misclassification in respect of transactions involving the plaintiff before the date of the plaint.
The Court was careful to fence the order. It does not affect transactions between the parties in the ordinary course, does not touch existing or future contractual or legal rights, and applies only to transactions in which wrong codes are said to have been assigned. It is passed without prejudice to all contentions, the mediator is free to suggest any other solution and is not bound by the interim measure, and the parties have liberty to return to court for modification. The matter is listed on October 27, 2026.
Why it matters
The striking move here is procedural. Section 12A gave the Court a binary: either the plaintiff had a case for urgent interim relief and could bypass mediation, or it did not and the plaint was vulnerable. The Court took neither branch. It treated the mediation requirement as satisfied in substance by sending the parties to the one body that licenses all of them, while keeping the interim protection alive so that the mediation is not overtaken by deductions during it.
That is a practical answer to a real problem, and it comes with a caution the Court itself supplied. Section 24 of the PSS Act does give the Reserve Bank an adjudicatory role, at the final tier, with its decision made binding. Having the regulator mediate an issue on which it may later have to adjudicate creates an obvious risk of the two roles running together, which is presumably why the order says twice that the Reserve Bank is facilitating and not deciding, and why it records that the appellate right survives.
The substantive question underneath is one the payments industry will recognise. A payment aggregator sits between merchants and banks, holds customer money in a regulated escrow account, and is contractually exposed to recoveries by acquiring banks, yet has no seat at the table when a card network adjudicates an interchange claim between an issuer and an acquirer. Whether a private network process can produce a determination whose financial consequences land on a non-party, and whether Section 24 requires otherwise, are questions this order does not answer. It expressly leaves them open.
The Court’s own explanation of why it acted is worth noting. It said the order was passed to ensure that transactions between issuing banks, acquiring banks and the network are not hampered, and to find a solution to similar problems about wrong codes that may arise between parties not before it, in the larger interest of the system operating under the PSS Act. That is a court treating a commercial suit as a symptom of a systemic gap rather than only as a contest between litigants.
Case Title: PayU Payments Private Limited v. Yes Bank Limited and Others [CS(COMM) 974/2026 with I.A. 24414/2026, I.A. 24415/2026 and I.A. 24416/2026]
Bench: Justice Subramonium Prasad, High Court of Delhi at New Delhi
Date of Order: September 14, 2026 | Next Listed: October 27, 2026
Appearances: Senior Advocates Rajiv Nayar, Sandeep Sethi and Rajeeve Mehra with a team of advocates for the plaintiff. Senior Advocate Rajshekhar Rao for Defendant No. 1. Senior Advocate Ashwini Mata for Defendant No. 2. Senior Advocate Akhil Sibal for Defendant No. 6.
Status: Interim arrangement in force pending mediation. Maintainability and all contentions expressly left open.