Delhi HC slams ‘unfair’ service charge levied by restaurants; ‘Can’t be mandatory,’ says the Court

The Delhi High Court on Friday, March 28, said that the ‘service charge’ levied by hotels and restaurants is an ‘unfair’ trade practice and that imposing it violates consumer rights.

The Court upheld the earlier guidelines issued by the Central Consumer Protection Authority (CCPA), which prohibited hotels and restaurants from automatically levying a ‘service charge’ on food bills.

Justice Prathiba M Singh thus rejected two petitions filed by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurants Association of India (NRAI), challenging CCPA guidelines, according to legal news website LiveLaw. The judgment in the matter was reserved in December last year.

The Court dismissed the writ petitions with ₹1 lakh each to be deposited with CCPA for utilisation for consumer welfare. The CCPA is not merely an advisory body; it has the power to issue guidelines for the prevention of unfair trade practices, and for protecting consumer interest, the Court said.

“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,” the Court said, according to LiveLaw.

The Court added that the mandatory collection of service charge on food bills is misleading as the same puts the consumers under the impression that they are imposed in the form of service tax or Goods and Services Tax (GST).

What were the CCPA guidelines of 2022?

The CCPA guidelines issued on July 4, 2022, were stayed by a coordinate bench. The Court had specified then that the service charge and obligation of the customer to pay must be “duly and prominently displayed on the menu or other places”.

Justice Prathiba M Singh clarified then that the interim order staying the guidelines shall not be shown on the menu cards or display boards in a manner to mislead the consumers that the court has approved the service charge.

The CCPA had defended its guidelines by submitting that mandatory levy of service charges by hotels and restaurants is “directly in teeth of the rights of consumers”, as well as provisions on unfair contracts, unfair trade practices and restrictive trade practices under the Consumer Protection Act.