Service Charge Row: Delhi High Court Asks CCPA To Approach Single Judge For Vacation Of Stay

The Delhi High Court on Thursday disposed of an appeal filed by the Central Consumer Protection Authority (CCPA) against a single judge order which had stayed its guidelines prohibiting hotels and restaurants from levying service charges on bills. 

A division bench comprising of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad granted liberty to CCPA  to file its response before the single judge in the pleas filed by Federation of Hotels and Restaurant Associations of India and National Restaurant Association of India.

The Federation had challenged the authority's guidelines stating that the levy of service charge is a matter of contract and the decision of the management and once the customer places the order after being made aware of the terms and conditions, a binding contract comes into existence..

The division bench has granted liberty to CCPA to move an application seeking vacation of stay before the Single Judge. The Bench also directed the single judge to pass an appropriate order in the matter.

Justice Yashwant Varma had stayed the guidelines in question on July 20.

During the course of hearing today before the division bench, Additional Solicitor General Chetan Sharma appearing for CCPA argued that the restaurant associations were levying the service charge in a manner which was perceived by an ordinary man as something of quasi judicial levy, which if not paid, will cause embarrassment to the consumers.

Sharma also argued that the Respondent-Federation did not represent the entirety of restaurant associations and that there were two associations who had a different view.

He further submitted that there was no question for the single judge to pass the impugned order without any counter affidavit being filed by the authority. He also argued that over 1,000 complaints were received from consumers after the order was passed.

Senior Advocate Kapil Sibal appearing for one of the respondents argued that the issue faced by most of the restaurants was that they were running the businesses from rented accommodation, thereby resulting in sharing of profits with landlords.

"In case the cost of product is increased, what you do is you have to give money to landlord. It doesn't go to the consumer. For delivery, like zomato, there is no service charge. If we increase cost of the product, then zomato profits because then they will share it," Sibal argued.

To this, Justice Prasad orally remarked that as an employer, the restaurants have an obligation to pay their employees and that service charge cannot be levied on the consumers to do so.

"You are liable and bound to pay your employees under various enactments, that is your obligation under law," Justice Prasad said.

The matter will now be heard on August 31 by the single judge.

The regulations instituted by the CCPA for the prevention of unfair trade practices and protection of customer interest stated thus:

"...Service charge is being levied in addition to the total price of the food items mentioned in the menu and applicable taxes, often in the guise of some other fee or charge. It may be mentioned that a component of service is inherent in the price of food and beverages offered by the restaurant or hotel. Pricing of the product thus covers both the goods and services component. There is no restriction on hotels or restaurants to set the prices at which they want to offer food or beverages to consumers. Thus, placing an order involves consent to pay the prices of food items displayed in the menu along with applicable taxes. Charging anything other than the said amount would amount to unfair trade practice under the Act."

While staying the guidelines, the single judge had said that the stay was subject to the members of the restaurant associations ensuring that the levy of service charge in addition to the price and taxes and obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.

Case Title: CCPA v. FEDERATION OF HOTELS AND RESTAURANT ASSOCIATIONS OF INDIA AND ORS & ANR.