Delhi HC bans mandatory service charges, calls it 'unfair trade practice'

The Delhi High Court today ruled that restaurants and hotels cannot impose mandatory service charges, affirming the CCPA's guidelines that protect consumer rights and promote fairness

The Delhi High Court ruled on Friday that restaurants and hotels cannot impose mandatory service charges on food bills, stating that such a practice amounts to unfair trade.

 

The court upheld the guidelines issued by the Central Consumer Protection Authority (CCPA), which prohibit mandatory service charges and ensure that consumers have the right to decide whether to pay them, reported Bar and Bench.

 

Justice Prathiba M Singh, who delivered the verdict, dismissed petitions filed by restaurant associations challenging the CCPA’s guidelines. The court also imposed a penalty of ₹1 lakh on the associations for contesting the guidelines. 

 

Reaffirming the CCPA’s authority, the court stated that the body is not merely advisory but has the legal power to regulate unfair trade practices and protect consumer rights.

 

The CCPA issued its guidelines in 2022, explicitly stating: 

- Restaurants cannot add service charges automatically to food bills. 

- Service charge cannot be disguised under any other name. 

- Customers must be clearly informed that service charges are voluntary. 

- No restaurant or hotel can deny service based on whether a customer pays a service charge. 

- Service charges cannot be added to the total bill amount and subjected to GST.

 

Rejecting objections raised by restaurant groups, the High Court ruled, “The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of the CCPA. The same has to be mandatorily complied with.”

 

Restaurant associations argued that the guidelines were arbitrary and could not be enforced as a government order. However, the court pointed out that mandatory service charges mislead customers by making them believe they are paying a government tax or GST.