NRAI, FHRAI take service charge ruling to division bench of Delhi HC

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Two appeals have been filed before the Division Bench of the Delhi High Court, challenging the recent ruling by a single-judge bench that declared service charges or tips as voluntary payments by customers, which cannot be imposed mandatorily by hotels and restaurants.

The single-judge bench of the Delhi High Court recently ruled that the mandatory collection of service charges is unlawful and violates established guidelines. The court further noted that while consumers are free to offer voluntary tips for services they have appreciated, such payments cannot be enforced. 

A Division Bench, comprising Chief Justice DK Upadhyaya and Justice Tushar Rao Gedela, took up the appeals on Tuesday. However, due to technical issues with the Court's virtual conferencing system, the hearings were adjourned and rescheduled for May 9.

Justice Prathiba M Singh delivered the verdict on March 28, 2025, dismissing petitions filed by restaurant associations that sought to challenge the guidelines issued by the Central Consumer Protection Authority (CCPA). These guidelines prohibit hotels and restaurants from imposing service charges on food bills.

The appeals were filed by the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI). 

The High Court upheld the CCPA's guidelines, emphasising that the Authority is not merely advisory but holds the power to issue directives to prevent unfair trade practices and safeguard consumer interests.

The CCPA issued guidelines in 2022, stipulating that restaurants cannot automatically or by default levy a service charge on food bills, nor can they disguise it under any other name. Furthermore, hotels and restaurants are strictly prohibited from compelling consumers to pay a service charge and must inform them that such charges are voluntary, optional, and entirely at the consumer's discretion. 

However, the hotel associations contended that imposing a service charge is not unlawful, emphasising that it is a globally recognised and transparent practice that does not constitute an unfair consumer practice. They further argued that the service charge plays a crucial role in ensuring the fair distribution of tip amounts among staff.