The Delhi high court on Friday held the payment of service charge by customers on food bills was voluntary and couldn't be made mandatory by restaurants or hotels.
Justice Prathiba M Singh upheld the 2022 guidelines issued by the Central Consumer Protection Authority (CCPA), which prohibit hotels and restaurants from automatically or by default levying service charges on food bills.
Judgment in the matter was reserved in December last year.
The court dismissed two petitions filed by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI), which had challenged the CCPA guidelines.
Upholding the guidelines today, the Court dismissed the writ petitions with Rs 1 lakh each to be deposited with CCPA for utilisation for consumer welfare.
The court clarified that while restaurants and hotels cannot impose a mandatory service charge, consumers remain free to leave voluntary tips if they wish.
The court held that the CCPA is not merely an advisory body and has the power to issue guidelines for prevention of unfair trade practices and for protecting consumer interest.
“The rights of consumers as a class prevail over the rights of restaurants, emphasizing that the society's interest is paramount,” the court stated.
'Misleading'
Furthermore, the court added that the mandatory collection of service charge on food bills is misleading as it puts the consumers under the impression that they are imposed in the form of service tax or GST. The court said that such a practice amounts to unfair trade practice.
The counsel for FHRAI said the CCPA had no power or jurisdiction to impose such a ban, without following the principles of natural justice.
The restaurant associations had argued that service charges had been an established practice for several years and were levied only after clear notice was provided on menu cards and premises. They contended that the CCPA guidelines were illegal and arbitrary and should be quashed.
The guidelines, which were issued on July 4, 2022, were stayed by a coordinate bench later that month. While doing so, the court had specified that the service charge and obligation of the customer to pay must be “duly and prominently displayed on the menu or other places.”
However, Justice Singh later clarified that this interim order should not be misrepresented on menu cards or display boards to suggest that the court had approved the imposition of service charges.