[BREAKING] Delhi High Court stays restriction on levy of service charge by restaurants on food bills

The Delhi High Court on Wednesday stayed the guidelines issued by the Central Consumer Protection Authority (CCPA) on July 4 stipulating that hotels or restaurant should not add service charge automatically or by default to food bills [NRAI & Ors. vs. UOI & Ors.]..Single-judge Justice Yashwant Varma, however, said that the fact that particular restaurant levies such charges should be displayed prominently on the menus.The Court also recorded the undertaking by the restaurants that there will be no service charge on takeaway food orders."The matter requires consideration, until the next date of listing, the directions as contained in para 7 for the impugned communication/guidelines of July shall remain stayed. The members of the petitioner association shall ensure that levy of service charge in addition and the obligation of customers to pay the same is duly and prominently displayed on the menu or other place where it may be deemed to be expedient. The members of the petitioner associations further undertake not to levy or include service charge on any takeaway orders," the order said.The Court sought responses from the respondent and posted the case for hearing next on November 25. "If you don’t want to pay don’t enter the restaurant. It is essentially a matter of choice,” the Court orally remarked as the hearing drew to a close..The order was passed on a plea by National Restaurant Association of India (NRAI) challenging the guidelines issued by CCPA. The CCPA had issued guidelines with the aim of preventing unfair trade practices and violation of consumer rights.The guidelines stipulated the following:Hotels or restaurant shall not add service charge automatically or by default in the food bill;No collection of service charge shall be done by any other name;No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion;No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers; andService charge shall not be collected by adding it along with the food bill and levying GST on the total amount..The plea by NRAI contended that there is no law which disallows restaurants from levying service charge and there has been no amendment to the existing laws which would render levy of the service charge illegal."In the absence of due authentication and promulgation of the guidelines, the contents thereof cannot be treated as an order of the Government," the plea stated..The petitioner-association contended that the guidelines are arbitrary, untenable and ought to be set aside.It was submitted that the levy of service charge has been a standing practice in the hospitality industry for more than 80 years which was evident from the fact that the Supreme Court had taken notice of this concept back in the 1964 case of Management of Wenger & Co. vs. Their Workmen.It was also the petitioner's argument that the levy of service charge is a matter of contract between the restaurant and the customer and no authority can interfere with the same unless it can be shown that the same amounts to an unfair trade practice."The levying of service charge is a matter of contract and decision of the management. The levying of service charge is displayed at various places in the restaurant. The same is also displayed on the menu cards of the restaurants. Once the customer places the order after being made aware of the terms and conditions there comes into existence a binding contract. 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 petition stated.Pertinently, the plea also cited socio-economic aspects since distribution of service charge collection amongst the employees ensure that the benefit is divided equally among all the staff workers including the utility workers, back end staff etc."The levying of service charge is a universally accepted trade practice. Service charge is being levied in various countries like UK, Singapore, Japan and USA with varying percentages between 8% and 12.5%," the petition said..Advocates Lalit Bhasin, Nina Gupta, Ananya Marwah, Ruchika Joshi and Ajay Pratap Singh appeared for NRAI. Senior Advocate Sandeep Sethi along with advocates Sameer Parekh, Sumit Goel and Swati Bhardwaj appeared for the Federation of Hotel and Restaurants Association of India. CGSC Sandeep Mahapatra and advocate Varun Kumar Garg appeared for the respondents. .[Read Order]