Q. I find that many restaurants in Mumbai, Thane, and Navi Mumbai are recovering service charge from customers under different names. For example, Banana Leaf from Lower Parel is charging 5% on the total bill as “staff welfare.” Punjab Grill from Nerul is charging 10% as “staff contribution,” whereas Mainland China from Thane adds “discretionary SC 10%.” I want to know whether including such 5% to 10% amount in the name of service charge, “staff welfare,” or “staff contribution” is permissible and legal. In some cases, restaurants refuse to remove it, stating that it is mentioned in the menu card and, therefore, when a customer places an order, it becomes a binding contract between the customer and the restaurant. How far is this argument valid? On many occasions, customers, even knowing that it is discretionary, do not wish to raise a dispute or ask the waiter to delete the amount in the presence of guests or business contacts, as it becomes awkward and embarrassing. What can be done to stop such practice? —– Dr Balasaheb Gaikwad, Mulund (East)
A. Several restaurants in Mumbai and adjoining areas levy 5% to 10% as service charge under different descriptions such as charity contribution, staff welfare fund, or staff contribution. In some cases, the menu card mentions in fine print that it is a “voluntary tip” and can be removed on request; however, this often goes unnoticed. In other cases, the charge is directly added to the bill without giving consumers any real option to refuse.
To answer your first question: Levying 5% to 10% under the name of “service charge” or any other nomenclature is neither permissible nor legal. The Central Consumer Protection Authority (CCPA) has declared the levy of service charge in any form as an “unfair trade practice” and prohibited it through its guidelines dated July 4, 2022. The Delhi High Court (HC), in its judgment of December 2025, dismissed appeals filed by hotel and restaurant associations challenging these guidelines and upheld the prohibition.
The court categorically ruled that compulsory recovery of service charges against the consumer’s will amounts to an unfair trade practice. Service charge is in the nature of a tip and is entirely voluntary. No restaurant can include it compulsorily in the bill or decide the percentage payable to its staff. Consumers should also note that GST is often levied on such amounts, further increasing the burden. Regarding the argument that mentioning service charge in the menu card makes it a binding contract term, this contention was rejected by the Delhi HC.
The court held that such a term is one-sided and constitutes an unfair contract term, and therefore is not legally sustainable. Restaurants cannot enforce such clauses or insist on payment. Any such coercive practice is illegal, and establishments may be directed to refund the amounts collected, along with interest, to the consumer welfare fund. It is understandable that customers may feel uncomfortable asking for removal of the charge in front of guests.
In such cases, consumers should, after making the payment, lodge a complaint with the National Consumer Helpline by calling the toll-free numbers 1800-11-4000 or 1915, providing bill details and the restaurant’s name and address, and seek a refund of the Service Charge collected in any form.
(Advocate Shirish V Deshpande is chairman, Mumbai Grahak Panchayat. Queries can be sent to him on email: shirish50@yahoo.com)
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