Featured image for Supreme Court Judgment dated 12-12-2017 in case of petitioner name Federation of Hotel and Restau vs Union of India & Others
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Hotels Can Charge Above MRP: Supreme Court Rules in Favor of Hotel Associations

The Supreme Court of India, in the case of Federation of Hotel and Restaurant Associations of India vs. Union of India & Others, ruled that hotels and restaurants are not bound by the Maximum Retail Price (MRP) regulations under the Standards of Weights and Measures Act, 1976, and the Legal Metrology Act, 2009. The Court set aside the Delhi High Court’s Division Bench ruling and reaffirmed that pricing within hotels and restaurants involves a composite contract of service and sale, which falls outside the scope of MRP regulations.

Background of the Case

The legal battle began when the Federation of Hotel and Restaurant Associations of India (FHRAI) challenged the applicability of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, to services rendered in hotels and restaurants. The main concern was that the Controller of Weights and Measures had initiated action against hotels and restaurants for charging above the MRP for packaged bottled water served to customers.

The federation argued that selling bottled water in hotels and restaurants was part of a service, not a simple retail transaction. This challenge led to multiple rounds of litigation:

  • 2003: FHRAI filed a writ petition before the Delhi High Court.
  • 2007: A Single Judge of the Delhi High Court ruled in favor of FHRAI, holding that the supply of bottled water in hotels/restaurants was not a mere sale but a composite service.
  • 2015: The Division Bench of the High Court, in a compromise ruling, allowed the government to enforce the new Legal Metrology Act, 2009, leaving the legal question open for future adjudication.
  • 2017: FHRAI appealed to the Supreme Court, arguing that the Single Judge’s ruling should be upheld.

Petitioner’s (FHRAI’s) Arguments

The hotel federation contended that:

  • Hotels and restaurants provide a composite service, where food and beverages, including bottled water, are incidental to the ambiance and hospitality.
  • Charging above MRP does not violate consumer protection laws because customers willingly pay for the overall service experience.
  • Judicial precedents in The State of Punjab vs. M/s. Associated Hotels of India Ltd. (1972) and Northern India Caterers (India) Ltd. vs. Lt. Governor of Delhi (1979) established that food and beverage sales in hotels are part of an indivisible contract of service.
  • The Single Judge of the Delhi High Court correctly ruled that bottled water pricing in hotels is not governed by MRP regulations.

Respondent’s (Union of India) Arguments

The government defended its enforcement action, arguing that:

  • The Standards of Weights and Measures Act, 1976, and later the Legal Metrology Act, 2009, mandate that pre-packaged commodities, including bottled water, be sold only at or below the printed MRP.
  • Hotels and restaurants cannot escape MRP regulations simply by claiming that they provide additional services.
  • Rule 3 of the 2011 Legal Metrology Rules defines institutional consumers, which include hotels, but does not exempt them from MRP enforcement.
  • The constitutional amendment under Article 366(29-A) explicitly recognizes food and beverage sales as taxable transactions.

Supreme Court’s Observations

The Supreme Court, in a judgment delivered by Justice R.F. Nariman and Justice Navin Sinha, made the following critical observations:

“The sale of bottled water in hotels and restaurants is not a mere transaction of sale, but part of a composite service contract. Since service is the dominant component, MRP regulations cannot apply.”

Other key findings included:

  • The Standards of Weights and Measures Act, 1976, and the Legal Metrology Act, 2009, are designed for consumer protection in retail sales, not for composite service transactions.
  • The definition of “sale” under these laws does not cover composite service contracts.
  • The Delhi High Court’s Division Bench wrongly ignored the Single Judge’s detailed legal reasoning.
  • Hotels and restaurants are institutional consumers under Rule 3 of the Legal Metrology Rules, and such transactions are not subject to MRP enforcement.

Final Judgment

The Supreme Court ruled as follows:

  • Set aside the Division Bench ruling of the Delhi High Court.
  • Upheld the Single Judge’s decision that hotels and restaurants are not bound by MRP restrictions for bottled water.
  • Confirmed that consumer protection laws do not override the nature of composite contracts.
  • Ruled that government enforcement actions under the MRP regulations against hotels were invalid.

Impact of the Judgment

This ruling has significant implications for consumer law and business regulations:

  • Clarifies pricing freedom for hotels: Reinforces the legal distinction between retail sales and service contracts.
  • Limits government overreach: Prevents authorities from enforcing MRP laws in contexts where service is the dominant factor.
  • Reinforces legal consistency: Aligns Indian consumer law with global business practices in the hospitality industry.
  • Protects consumer choice: Affirms that customers voluntarily pay higher prices in exchange for service and ambiance.

The Supreme Court’s decision ensures that the hospitality industry can operate with pricing flexibility while maintaining consumer rights through clear service agreements.

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