The Delhi High Court has ruled that service charges and tips in restaurants or hotels are voluntary and cannot be made compulsory on food bills. This decision came as the Court dismissed petitions challenging the guidelines set by the Central Consumer Protection Authority (CCPA) in 2022.
Justice Prathiba M Singh delivered the verdict, rejecting petitions filed by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI). These associations had challenged the CCPA guidelines that prohibit hotels and restaurants from adding service charges “automatically or by default” to bills.
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Court’s Decision and Its Impact
The judgment was reserved in December last year, and the final ruling has now upheld the CCPA guidelines. The Court dismissed the petitions and imposed a penalty of Rs. 1 lakh on each petitioner, to be deposited with the CCPA for consumer welfare.
The ruling made it clear that charging a mandatory service fee is against the law. However, if customers wish to leave a voluntary tip, they are free to do so.
“Mandatory collection of service charge on food bills is misleading and amounts to unfair trade practice.” – Delhi High Court
The Court emphasized that the CCPA is not just an advisory body but holds the authority to issue guidelines to prevent unfair trade practices and safeguard consumer rights.
“The CCPA is an empowered authority under the Consumer Protection Act, 2019. Issuing guidelines is its essential function, and these guidelines must be mandatorily followed.” – Delhi High Court
Misleading Consumers and Unfair Trade Practices
The Court noted that imposing a service charge automatically misleads consumers, as they might think it is a government-imposed service tax or GST. Such a practice was deemed an unfair trade practice, violating consumer rights.
The restaurant associations argued that service charges have been a long-standing practice and that restaurants clearly display these charges on menu cards and premises. They claimed that the CCPA guidelines were arbitrary and should be revoked.
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However, the CCPA defended its position, stating that forcing customers to pay a service charge directly violates consumer rights. The authority argued that such a charge does not equate to the purchase of a distinct product or service.
Previous Stay on Guidelines and Clarifications
When the guidelines were introduced on July 4, 2022, a coordinate bench had temporarily stayed them. The stay order specified that if restaurants wished to impose a service charge, they must clearly display this information on their menu or in visible locations.
Later, Justice Singh clarified that restaurants cannot mislead customers by displaying the interim stay order in a way that suggests the service charge was approved by the Court.
The Court’s ruling ensures that customers are not forced to pay additional charges beyond what they willingly agree to. While voluntary tips remain legal, mandatory service charges imposed by restaurants are now considered unlawful.
This judgment strengthens consumer rights and ensures that businesses adhere to fair trade practices, prioritizing transparency and fairness in billing policies.
Case Title: National Restaurant Association v. Union Of India & Anr
