PayU sues Yes Bank, ICICI Bank, Visa over MCC misuse. HC asks RBI to mediate

The Delhi High Court has directed the Reserve Bank of India to step in as a mediator in a dispute between payment aggregator PayU and a group of banks, including Yes Bank, ICICI Bank and card network Visa over disputed deductions running into tens of crores of rupees, tied to misclassification of merchant category codes (MCCs) on card transactions.

In an order dated September 14, Justice Subramonium Prasad asked the RBI to depute a senior officer to help the parties reach a resolution within 30 days, while directing all sides to maintain status quo on further deductions and claims in the interim.

“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,” the High Court said.

PayU had approached the court alleging that Yes Bank withheld roughly Rs 6.88 crore from its ongoing merchant settlements to cover an Interchange Reimbursement Fee (IRF) claim raised by ICICI Bank. The Head and Tale has been writing on the MCC misuse issue. 

The claim stemmed from allegations that certain merchants onboarded by PayU had been tagged with incorrect MCCs — four-digit codes used to classify a merchant's line of business and calculate the interchange fee owed to card-issuing banks.

An industry official, speaking on condition of anonymity last week, said the interchange fee (IRF) claims were unfairly burdening payment aggregators. "How is it our fault that certain MCCs [merchant category codes] have been operating for years at a particular fee, and all of a sudden we are told that this is wrong? The problem lies with the banks and card networks."

When asked about the case last week, a senior banker at one of the banks named in the suit said: "If an RBI-authorised payment aggregator says that merchant onboarding and the assignment of MCCs are not its responsibility, then the joke is on them."

PayU argued it plays no role in assigning MCCs, a task it says falls to the acquiring banks that process the transactions, and that it was never a party to the process Visa used to adjudicate the fee dispute. The company also flagged a broader risk. It said similar IRF claims pending against three other acquiring banks — estimated at roughly Rs 5.26 crore, Rs 27.3 crore and Rs 8.82 crore — could trigger further deductions from its accounts if resolved unfavourably.

During the Global Fintech Fest last week, the case had second hearing and the High Court reserved the order for September 14. 

Beyond the money, PayU asked the court to declare that Visa's internal "IRF Compliance Process" fails to meet the requirements of Section 24 of the Payment and Settlement Systems Act, 2007, which mandates that disputes between system participants be resolved through a properly constituted panel — and, failing that, referred to the RBI. PayU contended that a private process run by the card network, with financial consequences for a party that wasn't even represented in it, could not lawfully justify deductions from its escrow account.

Visa argued the company merely processes IRF claims based on submissions from banks under its own rule framework and has no hand in how acquiring banks recover money from PayU — that, it said, is governed entirely by separate commercial agreements between PayU and the banks.

Rather than ruling on the merits or granting the injunctions PayU sought, Justice Prasad noted that the entire chain — PayU, the acquiring banks, the issuing bank and Visa — operates under authorisations granted by the RBI, and that it remains unclear which party actually assigned the disputed MCCs in the first place.

The court held that instead of routing PayU through ordinary pre-litigation mediation, it made more sense to ask the RBI itself — as regulator of the entire payments ecosystem — to facilitate a resolution.

The court said the RBI will act only as a mediator and facilitator, not as the statutory adjudicatory panel contemplated under Section 24 of the PSS Act, and none of PayU's rights of appeal or arguments on maintainability are affected by the arrangement.

The court has ordered that Visa will not issue any final IRF determination on the pending claims against the acquiring banks; the acquiring banks will not make any further deductions, debits or netting from PayU's accounts; ICICI Bank (or any other issuing bank in the case) will not raise fresh interchange-loss claims over MCC misclassification for transactions predating the suit.

The court observed that the case may proceed to a full hearing on maintainability if mediation fails.

The matter has been listed next for October 27, 2026.

Yes Bank, Visa, ICICI Bank did not reply to The Head and Tale queries.

A PayU spokesperson said, "It is our policy not to comment on legal or regulatory matters."