The Delhi High Court on Friday held the payment of service charge on food bills was voluntary and restaurants couldn't impose it on customers.
Pronouncing the verdict, Justice Prathiba M Singh dismissed two petitions of the restaurant bodies challenging the Central Consumer Protection Authority (CCPA) guidelines prohibiting hotels and restaurants from mandatorily levying service charge on food bills.
The mandatory collection of service charge on food bills was violative of consumers rights and contrary to law and consumers were not barred from tipping voluntarily if they wished to do so, the court held.
The court added the mandatory collection of service charge on food bills was "misleading" and "deceptive" as it gave an impression to the consumers that they were imposed in the form of service tax or GST.
Such a practice amounts to "unfair trade practice" and the amount cannot be mandatorily added in the bill, it said.
Federation of Hotels and Restaurant Associations of India (FHRAI) and National Restaurant Association of India (NRAI) had moved the court in 2022 by filing two separate petitions.
The court upheld the guidelines and imposed Rs 1 lakh cost each on the petitioners to be deposited with the CCPA towards consumer welfare.
Underscoring society's interest as paramount, the court said the rights of consumers as a class would prevail over the rights of restaurants.
The court held that the CCPA was not merely an advisory body but was empowered to issue guidelines for prevention of unfair trade practices and for protecting consumer interest.
“The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of CCPA. The same has to be mandatorily complied with by all the restaurants,” the court said.
The court had on December 13, 2024 reserved its verdict.
The guidelines, issued by the CCPA on July 4, 2022, were stayed by the high court later that month.
The counsel for FHRAI said the CCPA had no power or jurisdiction to impose such a ban, without following the principles of natural justice.
"Merely holding a meeting with the industry body is not in compliance with natural justice and the guideline could only be advisory in nature," the counsel argued.
He said service charge was levied on customers for the benefit of the restaurant staff, in line with the fundamental right of the owners to carry on any occupation, trade, or business.
The Centre's counsel said no material was placed on record to show how service charge was benefitting the staff.
Petitioners argued that service charge, applicable in the last several years, was a “traditional charge” and sought by restaurants after a due display of notice on menu cards and premises.
They had argued the CCPA order was arbitrary, untenable and ought to be quashed.
The high court, on July 20, 2022, had stayed the CCPA guidelines and said the stay was subject to the petitioners ensuring the levy of service charge, in addition to the price and taxes, and the obligation of the customer to pay the same was duly and prominently displayed on the menu or other places.
