Delhi HC halts 'no service charge' order on restaurants; restaurateurs welcome the move

The Delhi High Court today stayed the recent guidelines prohibiting hotels and restaurants from levying service charge automatically on food bills.

Earlier this month, restaurant industry in a guideline passed by the Central Consumer Protection Authority (CCPA) were barred to charge any service charge from the customers.

As per the CCPA, the latest guidelines aim to prevent unfair trade practices that violate consumer rights and restaurants and hotels shall not force a consumer to pay service charge and shall clearly inform the consumer that service charge is at the consumer’s discretion and there will be no restriction on entry to a customer on this basis.

However, on Wednesday, Justice Yashwant Varma, while dealing with petitions filed by the National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations of India said the issue requires consideration and directed the authorities to file their reply.

“The Hon’ble Delhi High Court’s order granting a stay on the CCPA’s recent guidelines has come as a major relief to the hospitality industry. FHRAI had filed its writ petition in the Delhi HC contesting CCPA’s guidelines as it was curtailing hospitality establishments’ right to conduct business in the manner suitable to them. As per today's order, all directions under the guidelines in para 7 have been stayed subject to no service charge to be levied on takeaways, and all restaurants shall prominently display in the restaurant that Service Charge shall be levied. FHRAI stated that it is entirely the prerogative of a hotel or a restaurant to decide on the structure of the menu and its pricing, to best suit the business model. Further, Hotels are bound by wages contract with employees which specify benefits of Service Charge. The new guidelines are against the very grain of practising business in a fair environment and erroneously proceeded on the basis that Service Charge is akin to a tip /gratuity and therefore optional. FHRAI & its members shall make all endeavour to ensure that consumers/ patrons are well informed about the levy of Service Charge. We are glad that our employees shall continue to avail agreed benefits under Service Charge,” said Gurbaxish Singh Kohli, Vice President, Federation of Hotel & Restaurant Associations of India (FHRAI).

The court said that the stay is subject to the members of the petitioners ensuring that the levy of service charge in addition to the price and taxes and obligation of customer to pay the same is duly and prominently displayed on the menu or other places.

Further, the members will also undertake not to levy service charge on any take-away items, it added.

“If you don't want to pay, don't enter the restaurant. It is ultimately a question of choice. I have stayed the para 7 guidelines subject to these two conditions," shared the court order.

Citing this move by the court as welcome mover, Amit Bagga, Co-founder of Daryaganj Hospitality shared, “This will help in keeping our restaurant team motivated as they were concerned on how they will manage their expenses with service charge being removed.”

"The Restaurant staff is the major backbone of any brand & in the harsh times of inflation, service charge was not just an extra income source but also a token of appreciation that induced them to give their best. We are pleased and grateful as our hopes in the judicial system have been bestowed again. Hoping, the best happens for the staff as they are nothing less than a family for us,” added Vikrant Batra, Founder, Café Delhi Heights.

The court listed the matter for further hearing on November 25.

“We would like to thank the judiciary for being kind to the Waiters, Chefs & other restaurant workers who work day & night to serve the people. Service charge that gets proportionally divided among the staff acts as an "extra income" and "incentive bill which eventually motivates them to give their best at the job,” concluded Naresh Madan, Co-founder at Imperfecto.