Delhi HC questions restaurants on service charge, inflated prices beyond MRP – ‘Why charge Rs 100 for Rs 20 water bottle?’

Delhi HC

The Delhi High Court on Friday refused to stay an earlier order that bars restaurants from forcing customers to pay a service charge. The court also raised questions on why hotels and restaurants charge customers over and above the Maximum Retail Price (MRP) and then additionally add a service charge, The Times of India reported.

A bench of Chief Justice D K Upadhyaya and Justice Tushar Rao Gedela asked lawyers representing the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI) to explain the logic. The judges wanted to know why the service charge was not included in the higher price already charged for food and drinks.

"When you are already charging more on MRP in the name of the experience, why are you then levying a service charge?", the court asked. The bench further questioned whether ambience and hospitality were not already part of the services for which customers pay.

Earlier, in March, a single-judge bench had ruled that restaurants cannot mandatorily collect service charges in a ‘camouflaged and coercive’ manner. That order had described the practice as being against public interest and amounting to unfair trade practice.

The two-judge bench on Friday asked, "Providing an ambience for a certain kind of experience will not include the services you're providing? This we don't understand." It added, "And why are you quoting Rs 100 in your menu for a Rs 20 water bottle, without specifying that this 80 rupees extra is for the ambience you're providing? This can't be like this. This is an issue… Providing the ambience will form part of the services being provided by you... Can you charge any amount over and above the MRP? And for the service you're charging, what's that 80 rupees for?"

The associations argued that the charge was for hospitality and the overall experience, to which the bench replied, “If a customer sits in your restaurant and orders only a bottle of water, why should a service charge apply? Are you charging for the chair, for the music, or simply for permitting the person to sit there?”

The court recalled that in March it had called service charge collection a ‘double whammy’ for customers, since they are also forced to pay Goods and Services Tax (GST) on top of the service fee.

The central government supported the earlier ruling. Its counsel pointed out that many restaurants continue to impose service charges despite the court’s order, claiming it is their right. To this, the judges told the Centre that it must strengthen its legal metrology department to curb such practices.

Meanwhile, the counsel for the associations maintained that it was for the customer to take a call. "My menu is an invitation to offer. The customer walks into my restaurant. There is no compulsion," the counsel highlighted.

The court then posted the matter for further arguments on Sept 22, indicating it gave a short date as it intends to decide the issue finally and not give any interim relief.