Customer can pay service charge on food bills voluntarily, restaurants can’t impose it: Delhi HC

New Delhi: The Delhi High Court on Friday ruled that service charges on food bills are voluntary and cannot be imposed on customers by restaurants. The court dismissed two petitions filed by restaurant associations challenging the Central Consumer Protection Authority (CCPA) guidelines prohibiting mandatory service charges.

Delivering the judgment, Justice Prathiba M Singh stated that compelling customers to pay service charges violates consumer rights and is contrary to the law. “Consumers are not barred from tipping voluntarily if they wish to do so, but a mandatory levy is not permissible,” the court observed.

The court described the mandatory imposition of service charges as “misleading” and “deceptive,” noting that it could create the false impression that such charges were government-imposed, akin to GST or other taxes.

The Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI) had moved the court in 2022, seeking to overturn the CCPA guidelines. However, the court upheld the guidelines and directed the petitioners to deposit Rs 1 lakh each with the CCPA towards consumer welfare.

The ruling underscored the protection of consumer rights, stating that the interests of consumers as a whole must take precedence over those of restaurants. The court also reinforced the authority of the CCPA, affirming that it is not merely an advisory body but a regulator with the power to issue binding guidelines to curb unfair trade practices.

“The CCPA is an authority empowered under the Consumer Protection Act, 2019, to issue guidelines. These guidelines must be followed by all restaurants,” the court said in its ruling.

The petitioners had contended that the CCPA lacked the jurisdiction to impose such restrictions and had not followed the principles of natural justice. “Merely holding a meeting with industry representatives does not fulfill the requirement of natural justice. The guideline could only be advisory,” argued the counsel for FHRAI. The restaurant associations maintained that service charges were a long-standing industry practice, implemented transparently through notices on menu cards and premises. They asserted that such charges benefitted restaurant staff and were part of the fundamental right of business owners to carry on their trade. The Centre’s counsel, however, countered that there was no evidence demonstrating that service charges directly benefitted restaurant employees.

The high court had initially stayed the CCPA guidelines on July 20, 2022, permitting restaurants to levy service charges provided they prominently displayed notices informing customers about the charge. The stay remained in place until the final verdict was delivered on Friday.