A plea has been filed in the Delhi High Court challenging an order that prohibits restaurants from mandatorily levying a service charge on food bills. The plea was submitted by the National Restaurants Association of India (NRAI), which is seeking to overturn the verdict delivered by a single judge in March 2023. The judge had dismissed the petitions of various restaurant bodies against the Central Consumer Protection Authority (CCPA) guidelines, which prohibited restaurants from mandatorily charging service fees on customer bills.
Legal Background and Initial Verdict
The single judge had upheld the CCPA’s guidelines, asserting that the mandatory collection of service charges was against public interest and could be considered an unfair trade practice. The judge also imposed a ₹1 lakh cost on each of the petitioners to be deposited for consumer welfare. The ruling was made in response to consumer complaints about arbitrary service charge levies by restaurants, which were seen as coercively enforced.
Arguments Presented by NRAI in the Appeal
In its appeal, the NRAI raised several legal questions regarding the imposition of service charges. The association argued that when service charges are clearly stated on the menu or displayed in a restaurant, it constitutes a contract between the customer and the restaurant. They questioned whether it was lawful for authorities to treat the service charge as an unfair practice, suggesting that it could be seen as part of the restaurant’s pricing structure.
The NRAI also emphasized that such levies were necessary to support restaurant employees, and that prohibiting them would constitute an anti-labor practice. They further argued that it was not the place of consumer protection law to dictate how restaurants should price their services.
The Court’s Findings and Consumer Protection Concerns
In its judgment, the single judge emphasized the importance of consumer rights, stating that the imposition of a mandatory service charge was unjustified, especially when it was levied over and above the price of the food and services. The court highlighted that consumers were already paying Goods and Services Tax (GST) on top of the service charge, creating a “double whammy” for customers.
However, the judge clarified that voluntary tipping was still allowed, as long as it was not added automatically to the bill. Customers could freely decide if they wanted to give a tip, but it should not be enforced by restaurants as a mandatory charge.
Impact on Restaurant Businesses and Consumer Rights
The NRAI’s appeal questions the limits of the Consumer Protection Act, particularly in regulating pricing structures within the hospitality sector. The association argues that restaurant owners should have the freedom to determine how to price their products, including whether to charge a service fee. This legal challenge underscores the tension between consumer protection and business operations, with the future of service charges hanging in the balance.
The verdict, however, said if consumers wished to pay any voluntary tip for the services, it wasn’t 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,” it ruled.
The single judge clarified all restaurants would have to adhere to the guidelines passed by the CCPA and in case of any violation, would face action.
Conclusion: The Future of Service Charges in Restaurants
The Delhi High Court’s decision will have significant implications for both consumers and restaurant owners. If the verdict is overturned, it could set a precedent for the legality of mandatory service charges in the hospitality industry. The outcome of this case will likely impact how restaurants structure their pricing and whether customers will continue to see service charges as a standard part of their dining experience.
