Restaurant Association moves Delhi High Court challenging restriction on adding service charge by default in food bill

The National Restaurant Association of India (NRAI) has moved the Delhi High Court challenging 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.]..The plea 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.Justice Yashwant Varma briefly heard the plea on Monday before he deferred the hearing for Thursday, July 21.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%. In the UK, accounting and distribution of service charge is also done through an independent agency through a system called Tronc," the petition said.Finally, the plea submitted that the legality, reasonableness or justification of levying service charge had been considered by the Supreme Court, High Courts, National Consumer Disputes Redressal Commission and erstwhile Monopolies and Restrictive Trade Practices Commission. The levy of service charge as a substitute for tips has been upheld in various judicial pronouncements, it was pointed out.Advocates Nina Gupta and Ananya Marwah appeared for the petitioner, NRAI.