NEW DELHI: The Delhi High Court will hear two appeals on May 9 against a previous court decision that supported the Central Consumer Protection Authority (CCPA) guidelines. These guidelines ban the automatic addition of service charges to restaurant bills.
The National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI) had challenged this decision. The appeals were listed before a Division Bench, comprising Chief Justice Devendra Upadhyay and Justice Tushar Rao Gedela. However, the hearing was postponed due to technical issues with the virtual hearing system, and it will now take place on May 9.
In July 2022, the CCPA issued guidelines saying restaurants cannot add service charges to bills without asking customers. This followed many complaints from diners about service charges of 5-20% being added automatically. The NRAI and FHRAI claimed that service charges have been a common industry practice for over 80 years, based on labour agreements. But the single-judge court found no proof that the service charge directly benefits workers.
The judge ruled that forcing customers to pay it is an unfair trade practice under the Consumer Protection Act, 2019.
The court said the CCPA has legal power to stop unfair trade practices. Even though they are called “guidelines,” they have the force of law. The court also banned the use of the term “service charge” on bills, as it may confuse people into thinking it is a government tax. Instead, restaurants should use terms like “voluntary contribution” or “staff welfare fund.” Service charges must not be added automatically, and customers must be clearly told that tipping is their choice.
The single-judge bench dismissed the petitions from NRAI and FHRAI and fined them Rs 1 lakh each, to be paid to the CCPA for consumer welfare. After this decision, both associations filed appeals. In its appeal, the NRAI said that clearly informing customers about service charges on menus is not unfair. It argued that service charges are a recognised part of the restaurant industry and employee pay, and are supported by court rulings and labour agreements.
The NRAI also questioned whether this issue should be handled under labour law instead of consumer law.