Delhi HC takes a tough stand against service charges

Delhi High Court questioned the legality of restaurants charging above MRP for ambience and service, reinforcing consumer rights against service charges.

The Delhi High Court on Friday questioned the legality of restaurants charging customers beyond the maximum retail price (MRP) of goods under the pretext of ambience or a premium dining experience, in addition to levying service charges.

To illustrate its point, the bench cited the example of a water bottle priced at ₹20 MRP being billed at ₹100 in a restaurant — broken down as ₹80 for ambience and ₹10 as service charge. (HT Archive)

The observation came after senior advocate Sandeep Sethi, representing the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI), defended the practice before a bench of chief justice DK Upadhyay and Justice Tushar Rao Gedela. He argued that charges above MRP were justified on account of the ambience and overall experience provided to customers.

The bench, however, expressed strong reservations.

“Apart from MRP, you’re charging some extra amount for the goods sold and in addition to that you are charging service charge. Under the Legal Metrology Act, none is empowered to sell an item over and above the MRP, and you say you are charging it for the experience. You’re charging service charges for what? Whether providing an ambience will not be included in the services you are providing?” the court asked Sethi.

To illustrate its point, the bench cited the example of a water bottle priced at ₹20 MRP being billed at ₹100 in a restaurant — broken down as ₹80 for ambience and ₹10 as service charge. “In your menu, why do you quote ₹100 for a ₹20 bottle without specifying that ₹80 is for ambience? It cannot be like this. ₹20 is the MRP, ₹80 for ambience and ₹10 as service charge. Should ambience not be a part of the service charge? If you can’t sell over and above the MRP, what are you charging ₹80 for?” the court asked.

The case stems from appeals filed by NRAI and FHRAI against a single judge’s ruling that prohibited the automatic levy of service charges in restaurants and hotels, calling it an “extraordinary burden” on consumers without their explicit consent.

On March 28, justice Prathiba M Singh had reinforced guidelines issued by the Central Consumer Protection Authority (CCPA) in 2022, which gave consumers the unequivocal right to refuse payment of service charges, irrespective of service quality.

In their appeal, NRAI and FHRAI contended that if the levy of service charge is clearly mentioned in the restaurant’s menu and displayed at the establishment, it cannot be deemed an unfair trade practice under the Consumer Protection Act. They argued that service charges safeguard the rights of millions of employees in catering establishments across the country.

The associations further maintained that restaurant owners have the right to structure product pricing under various heads and that the CCPA had no authority to dictate to the owners regarding the structuring of price. They further argued that the CCPA guidelines were beyond its jurisdiction.

During the hearing, the CCPA, represented by additional solicitor general Chetan Sharma, countered that several restaurants continued to levy service charges despite the single judge’s order, relying on what they termed “sovereign powers.”

While fixing September 22 as the next date of hearing, the division bench clarified that it would not consider interim relief but hear the matter finally. “Interim order has not operated since the filing of the appeal (in April). We’ll hear it finally,” the bench noted.