Delhi High Court said Today (April 29) it will hear appeals by NRAI and FHRAI on May 9 against the ban on auto-added restaurant service charges. The outcome could reshape how eateries charge customers across India.
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NEW DELHI: The Delhi High Court today scheduled a hearing on May 9 to listen to two important appeals filed by the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI).
These two restaurant bodies are challenging a previous court decision that upheld the Central Consumer Protection Authority (CCPA) guidelines which stop restaurants from automatically adding service charges to customer bills.
The case was listed today before a Division Bench led by Chief Justice Devendra Upadhyay and Justice Tushar Rao Gedela. However, due to some technical problems with the virtual court system, the hearing was postponed to May 9.
This legal matter started back in July 2022, when the CCPA introduced clear guidelines that banned restaurants from forcing customers to pay service charges. These rules came after many consumers complained that 5% to 20% service charges were being added to their food bills without their agreement.
The restaurant industry, however, did not agree with these new rules. The NRAI and FHRAI approached the Delhi High Court arguing that the practice of adding service charges is more than 80 years old and is closely tied to labour agreements and employee salaries.
But the single judge who first heard the case did not find any solid proof that the collected service charges go directly to employees. The Court decided that such service charges should only be paid if the customer chooses to, and that forcing customers to pay counts as an unfair trade practice under the Consumer Protection Act, 2019.
The Court also said that the CCPA has full legal power under the Consumer Protection Act to regulate unfair practices, even if their orders are called “guidelines“. The judge explained that the guidelines have the “binding force of law.”
The judge also ordered restaurants to stop using misleading terms like “service charge”, as this can confuse customers into thinking it is a government tax. Instead, the Court said restaurants should use terms like “voluntary contribution” or “staff welfare fund” so that customers clearly know what they are paying.
The Court also added that service charges should not be added automatically and that customers should be clearly informed that tipping is voluntary.
The single-judge bench fully upheld the CCPA guidelines and rejected the petitions filed by the restaurant associations. The Court also ordered both NRAI and FHRAI to pay a penalty of ₹1 lakh each to the CCPA for consumer welfare.
After this judgment, the NRAI and FHRAI filed appeals in the Division Bench of the Delhi High Court, seeking to overturn the earlier order.
In its appeal, the NRAI has argued that if the service charge is mentioned on the menu and displayed properly in the restaurant, it does not amount to unfair trade practice under the law. They added that this practice is not new and is accepted by the Supreme Court, High Courts, Wage Boards, and labour agreements. They also said that it is an important part of the employee’s earnings.
The NRAI further said that the case should actually be seen under labour law, not consumer law, and questioned whether the CCPA even has the authority to control restaurant pricing structures that are clearly shown and accepted by customers when they order food.
The NRAI also said,
“Customers have the option not to avail the services if they disagree with the service charge”
and that the CCPA’s rules are interfering with wage structures and labour agreements that already exist.
The restaurant body also said that “service charge distribution benefits employees” and that calling it an unfair trade practice is actually harmful for workers.
Now, all eyes are on the Delhi High Court, which will take up the matter again on May 9. The outcome will impact restaurants, employees, and consumers across the country.
CASE TITLE:
National Restaurant Association v. Union Of India & Anr
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