Delhi HC reserves verdict on plea against ban on eateries' service charge

The Delhi High Court on Friday reserved its verdict on the petitions by restaurant bodies challenging the guidelines prohibiting hotels and restaurants from automatically levying service charge on food bills.

"Arguments heard. Judgement reserved," said Justice Prathiba M Singh.

Federation of Hotels and Restaurant Associations of India (FHRAI) and National Restaurant Association of India (NRAI) moved court in 2022 by filing two separate petitions.

The guidelines, issued by Central Consumer Protection Authority (CCPA) on July 4, 2022, were stayed by the high court later that month.

The counsel for FHRAI, in his rejoinder submissions on Friday, asserted the CCPA had no power or jurisdiction to impose such a ban, without following the principles of natural justice.

"Merely holding a meeting with the industry body is not in compliance of natural justice," he said, "the guideline could only be advisory in nature".

He said the service charge was levied on customers for the benefit of the restaurant staff, in line with the fundamental right of the owners to carry on any occupation, trade, or business.

The Centre's standing counsel said no material was placed on record to show how service charge was benefitting the staff.

Petitioners have argued that service charge, applicable in the last several years, was a traditional charge and sought by restaurants after a due display of notice on menu cards and premises.

They argued the CCPA order was arbitrary, untenable and ought to be quashed.

Seeking dismissal of the petitions, CCPA, in its counter affidavit, said the petitioners had "totally failed" to appreciate the rights of the consumers, whose hard-earned money was unjustly collected automatically or by default in the name of service charge.

It added the objective of collecting mandatory service charge from consumers over and above the price of food items and applicable taxes was "unlawful" as no proportionate service was separately provided to consumers.

The high court, on July 20, 2022, stayed the CCPA guideline and said the stay was subject to the petitioners ensuring the levy of service charge, in addition to the price and taxes, and the obligation of the customer to pay the same was duly and prominently displayed on the menu or other places.