Delhi restaurants refuse to budge on service charge despite HC order

Most restaurants in the National Capital Region (Delhi-NCR) have continued to impose a service charge even after a recent Delhi High Court verdict struck down the practice. At Delhi’s upscale Khan Market, almost all restaurants, barring a couple, are imposing a 5-10 per cent additional charge, calling it “service charge”, “staff welfare contribution charge”, or “staff contribution charge”.

 

Managers at some of these restaurants said that the charge is voluntary and is removed if the customer demands it. But it is being added to the bill, making it the customer’s responsibility to check for the charge and take necessary action. Eateries at Connaught Place and Greater Kailash’s (GK’s) popular M-block are levying 5-12 per cent additional charge.

 

The few restaurants that have rolled back these charges following the Delhi High Court order on March 28 include, Perch Wine and Coffee Bar and Andrea’s Bar & Brasserie in Khan Market, Fig and Maple, and Berco’s at GK M-block, and Social and Lord of the Drinks at Connaught Place.

 

Justice Pratibha M Singh had over a month ago ruled that “while the mandatory collection of service charge is contrary to law and violates the guidelines”, a voluntary tip by customers for the service enjoyed “would not obviously be barred”. “The amount, however, ought not to be added by default in the bill or invoice, and should be left to the customer’s discretion,” the court said.

 

Following the judgment, the Central Consumer Protection Authority (CCPA) served suo motu notices to five restaurants for refusing to refund the service charge they had levied on patrons. The National Restaurant Association of India (NRAI) has filed an appeal that is pending with the division bench of the High Court and many establishments are planning to raise prices of items on the menu.

 

An NRAI spokesperson, however, had told Business Standard earlier that raising prices is not a viable solution as restaurants often work on a revenue-sharing model with landlords and adding those prices to the maximum retail price will impact profitability, and not allow the money to go to the staff. Restaurants levy service charges to cover the cost of providing services to customers and compensate staff, including wait staff and servers.

 

According to Karun Mehta, partner at law firm Khaitan & Co, the process of automatically adding the service charge to the bill and removing it only when the customer asks for it to be removed may be considered a violation of CCPA guidelines. “Restaurants can leave a blank space in the invoice for consumers to voluntarily fill the amount and pay if they wish,” he said.

 

Vishal Gehrana, principal associate at law firm Karanjawala & Co, said simply renaming the service charge to “staff welfare fund” or “contribution to team” does not change the legal position. “What matters is the substance, not the label. If the payment is added without express consumer consent, regardless of what it’s called, it violates the Delhi High Court order and may invite regulatory action. You can rename it, but you cannot reframe it,” he said.

 

Meanwhile, the Delhi High Court had also suggested that the CCPA may consider permitting change in the nomenclature for service charge, which is nothing but a “tip or a gratuity or a voluntary contribution”. “The use of the word ‘service charge’ is misleading as consumers tend to confuse the same with service tax or GST (goods and services tax) or some other tax which is imposed and collected by the government,” the court had said.

 

“Consumer rights cannot be subjugated to an argument that a contract is being entered into by the consumer, while entering the establishment, to pay service charge, as the payment and collection of service charge is itself contrary to law,” the judgment said.

 

The court had further said: “The collection of service charge and use of different terminologies for the said charge is misleading and deceptive in nature. The same constitutes an unfair trade practice under Section 2 (47) of the CPA (Consumer Protection Act), 2019.”

 

The court also pointed out that the argument that service charge can be collected as part of a voluntary agreement with the consumer who avails of services after seeing the chargeability of service charge on the menu “is not tenable” as such a condition is onerous and constitutes an unfair contractual obligation under CPA, 2019.

 

Tushar Kumar, an advocate practicing in the Supreme Court, said in case of judgment violation, errant establishments could invite proceedings for contempt of court apart from action by the CCPA.

 

Anshuman Singh, an advocate-on-record, said that restaurants could attract penalties and fines by the CCPA.

 

In a gist

 

> Experts say errant establishments could face contempt of court proceedings

> Restaurants managers say charge is voluntary and removed if the customer demands it, but indeed added to the bill

> Some restaurants that have rolled back these charge:

•  Khan Market: Perch Wine and Coffee Bar, and Andrea’s Bar & Brasserie
•  GK M-block: Fig and Maple, and Berco’s
•  Connaught Place: Social and Lord of the Drinks

> On March 28, Delhi HC ruled that a voluntary tip by customers for the service enjoyed “would not obviously be barred”