Use Term ‘Staff Contribution’ Instead Of Service Charge, Amount Can’t Be More Than 10% Of Total Bill: Delhi HC To Members Of Restaurant Association

The Delhi High Court has directed the members of Federation of Hotel and Restaurant Associations of India to only use the term “Staff Contribution” for the amount being charged as “service charge” currently.

Justice Prathiba M Singh added that the amount being charged as “staff contribution” shall not be more than 10% of the total bill amount excluding the GST component.

“…. the menu cards shall specify in bold that after the payment of ‘Staff Contribution’, no further tip is necessary to be paid to the establishment/servers/restaurant staff,” the court said.

The court was hearing the pleas moved by the Associations challenging the guidelines of Central Consumer Protection Authority that prohibit the hotels and restaurants from levying service charges “automatically or by default” on bills.

A co-ordinate bench in July last year stayed the guidelines while specifying that the service charge and obligation of the customer to pay it must be “duly and prominently displayed on the menu or other places”.

In an order passed on September 05, Justice Singh said that the order is merely an interim order, which shall be subject to further orders in the petitions.

“The above order shall not be construed as an approval of the charges being collected, in as much as the legality of the collection of such charges is to be adjudicated by this Court,” the court clarified.

The court noted that the counsel representing the Federation of Hotel and Restaurant Associations of India submitted that its members are willing to change the terminology from ‘Service Charge’ to ‘Staff Contribution’.

“Henceforth, the said terminology shall be used by FHRAI’s members who are collecting the same,” the court said.

However, the counsel representing National Restaurant Association of India submitted that its members are not willing to change the term ‘Service Charge’ to any other term.

“The stand of NRAI is that the ‘Service Charge’ which is being imposed currently, has been considered in a number of decisions and thus, the same would require consideration,” the court said.

While listing the matter on October 03, the court said that in case the pleas cannot be finally heard, the application for vacation of stay shall be considered and appropriate orders shall be passed.

Earlier, the court had directed both the Associations to submit an affidavit indicating the percentage of its members who are imposing the service charge as a mandatory condition on food bills.

They were also directed to indicate as to whether their members would have an objection in case the term “service charge” is changed to some alternative terminology like “staff welfare fund, staff welfare contribution or staff charges” to avoid confusion in the minds of consumers that the charge is being levied by the government.

The CCPA had defended its guidelines by submitting that mandatory levy of service charge by hotels and restaurants is "directly in teeth of the rights of consumers" as well as provisions on unfair contract, unfair trade practices and restrictive trade practice under the Consumer Protection Act.

The authority had further said that by paying such a service charge, a consumer is not buying a distinct good or availing a separate service from the restaurant or hotel.

Case Title: National Restaurant Association v. Union Of India & Anr.

Citation: 2023 LiveLaw (Del) 801

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