Delhi High Court Seeks Centre's Stand On CCPA Guidelines Barring Restaurants From Automatically Levying "Service Charge"

The National Restaurant Association of India has moved the Delhi High Court against recent guidelines issued by the Central Consumer Protection Authority (CCPA) barring Hotels and restaurants from levying service charges automatically or by default on food bills.

Through the petition, the NRAI submitted that the CCPA guidelines were "arbitrary and untenable" as they had been issued without appreciation of the facts and circumstances.

The petitioner submitted that that levy of service charge, when displayed on the menu/price list and informed to the customer in advance, becomes an agreement between the parties and is not a violation under law. It was submitted that there was no law which disallows restaurants to charge service charge. There has neither been a new law or an amendment in the existing laws which make charging of the service charge illegal. In the absence of due authentication and promulgation of the guidelines, the petitioner stated that the contents thereof cannot be treated as an order of the Government.

The argument of the petitioner was that the levy of service charge is a matter of contract and decision of the management and once the customer places the order after being made aware of the terms and conditions there comes into existence a binding contract. Thereafter, no authority can interfere with binding nature of a valid contract until and unless it is shown and proved to be unconscionable or is an unfair trade practice. The petitioner also highlighted that the system of levying Service Charge ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant. This, as per the NRAI, ensures that the benefit is divided equally among all the staff workers including the utility workers, back end staff etc.

The matter came up today before a single bench of Justice Yashwant Varma, which directed the Ministry of Consumer Affairs and CCPA to take instructions on the issue and listed the matter for hearing on July 21. Formal notice is yet to be issued.

During the hearing, the Judge orally remarked that the impugned guidelines pertain to service charge being levied without the consent of customers and was not against service charge levied by restaurants after obtaining prior consent.

The petitioners submitted that levying service charge was not an "unfair trade practice" and cited the 1976 judgement of Rambagh Palace Hotel, Jaipur v. The Rajasthan Hotel Workers' Union, Jaipur, in which it was held that "the true character of tips cannot be treated as any payment made by the Management out of its pocket but a transfer of what is collected, to the staff as it is intended by the payer to be so distributed".

CASE TITLE: NRAI & Ors. v. Union of India & Ors.