New Delhi: The Delhi High Court has ruled that restaurants cannot impose a mandatory service charge on food bills, stating that paying it is purely voluntary. The court dismissed petitions filed by restaurant associations challenging the guidelines issued by the Central Consumer Protection Authority (CCPA), which prohibit mandatory service charges in hotels and restaurants.
Justice Prathiba M Singh, while delivering the verdict, stated that the practice of automatically adding a service charge to food bills is misleading and deceptive as it gives customers the false impression that it is a government-imposed tax like GST. The court emphasized that such a practice amounts to an “unfair trade practice” and cannot be enforced. However, customers are free to tip voluntarily if they wish.
Court Upholds Consumer Rights Over Restaurant Interests
The court highlighted that consumer rights take precedence over the interests of restaurants, reaffirming that the CCPA has the authority to issue guidelines aimed at preventing unfair trade practices. The guidelines, issued on July 4, 2022, were initially challenged by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI). However, the court upheld them and imposed a penalty of ₹1 lakh on each petitioner, to be deposited with the CCPA for consumer welfare.
Restaurant Industry’s Argument Rejected
The restaurant associations argued that service charges were a long-standing practice meant to benefit restaurant staff and should be considered a legitimate business right under the fundamental right to trade. They also claimed that the CCPA overstepped its authority by imposing a ban without following due process. However, the court rejected these arguments, noting that no substantial evidence was provided to prove that service charges directly benefited employees.
The court concluded that all restaurants must comply with the CCPA guidelines, making it clear that customers cannot be forced to pay a service charge. If restaurants choose to levy it, they must clearly inform customers in advance and ensure it remains optional.
