The National Restaurant Association of India (NRAI) has filed an appeal against a Delhi High Court ruling that upheld a ban on the mandatory collection of service charges by restaurants.
The appeal is expected to be heard by a division bench on Tuesday.
Challenge To Single-Judge Decision
The appeal challenges the March 28 order of a single-judge bench, which had dismissed petitions by NRAI and the Federation of Hotel and Restaurant Associations of India (FHRAI). The petitions had contested the Central Consumer Protection Authority (CCPA) guidelines prohibiting hotels and restaurants from compulsorily levying a service charge on customers’ bills.
In addition to upholding the guidelines, the court imposed costs of ₹1 lakh each on the petitioners, directing the amount to be deposited with the CCPA for consumer welfare purposes. The judge emphasized that mandatory service charges were “against public interest” and adversely affected the economic and social fabric of consumers.
Court’s Observations
The single judge ruled that restaurants have the freedom to determine the prices of their food and services, taking into account factors such as salaries, raw materials, and operational costs. However, after pricing is finalized, imposing an additional mandatory service charge was deemed unjustifiable.
The court further remarked that forcing consumers to pay a service charge alongside GST amounted to a “double whammy” for customers. It stressed that while customers are free to leave voluntary tips, service charges should not be added by default to their bills. “The amount, however, ought not to be added by default in the bill or invoice and should be left to the customer’s discretion,” the verdict stated.
Key Arguments
In its appeal, filed through Senior Advocate Lalit Bhasin, NRAI has raised several critical questions of law:
Contractual Agreement
The association argued that if the service charge is clearly mentioned on the menu and displayed at the restaurant, it forms part of the contract. “Where it is specifically and distinctly provided on the menu card that service charge at a certain percentage of the bill is payable by the customer does it not constitute a contract where the customer becomes liable to pay the total amount of the bill which is inclusive of the service charge and taxes?” the plea questioned.
Workers’ Rights
The appeal also highlighted the potential impact on restaurant employees, asking, “Is it permissible in law to treat the levy of service charge as a consumer protection right, as against the rights of millions of employees in catering establishments across the country? Is it not an anti-labour practice?”
Freedom To Set Prices
The NRAI contended that restaurants should retain the freedom to structure their prices however they see fit, including splitting costs under various headings. “Is it not open to the owners of restaurants to fix the price of the product by splitting the same under different nomenclatures?” it argued.
Consumer Choice
It was also submitted that customers have the choice to not dine at a restaurant if they are unwilling to pay the service charge: “Is it not open to the customer not to avail the services of the restaurant if he does not wish to pay service charge?”
Jurisdiction Of CCPA
Finally, NRAI questioned whether the CCPA had the legal authority to issue guidelines regulating how businesses price their services, pointing out that the Consumer Protection Act is not intended to be a price-control legislation.
Dispute Background
In 2022, NRAI and FHRAI had approached the Delhi High Court challenging the CCPA’s guidelines, arguing that mandatory service charges were a long-standing industry practice and crucial for staff welfare. The single-judge ruling, however, leaned heavily in favor of consumer rights, warning against practices that could coerce customers.
The ruling stated that if consumers wished to reward good service, they could do so voluntarily, but no establishment could compel them to pay extra.
The outcome of NRAI’s appeal could have a wide-reaching impact on pricing practices across India’s hospitality sector. As the division bench takes up the matter, the debate over balancing consumer protection and business autonomy is set to take center stage.
