Stay Order on Service Charge Ban Not Approval of Practice: Delhi HC

The Delhi High Court said on Wednesday its earlier order staying a ban on automatic levy of service charge on food bills cannot be shown by restaurants to the customers in a manner which suggests that the charge has been approved by it.

Justice Prathiba M Singh, who was hearing the pleas by two restaurant bodies challenging the July 4, 2022 prohibition by the CCPA, also observed that the words ‘service charge’ give an impression of being a government-backed levy and asked the petitioners to state if they have any objections to changing the term to ‘staff charges’ or ‘staff welfare fund’ etc to avoid any confusion.

The judge asked the petitioners- National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations- to also state the percentage of its members who impose service charge as a mandatory condition and directed them to file their affidavits on the queries.

Additional Solicitor General Chetan Sharma said certain restaurants were misinterpreting and misusing the stay order to give legitimacy to the imposition of service charge.

The high court had on July 20, 2022 stayed the Central Consumer Protection Authority (CCPA) guideline for a ban on Service Charge and said the stay is subject to the petitioners ensuring that the levy, in addition to the price and taxes, and the obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.

The court asked the petitioners to state the percentage of its members willing to inform consumers that service charge was not mandatory and the customers could make voluntary contributions.

“It is made clear that the interim order of the court shall not be shown in display board or menu cards in a manner to show consumers that service charge has been approved by this court,” it clarified and listed the case for further hearing on July 24.

“(The petitioners will also state if they have) any objection in changing the term service charge to avoid confusion that it is a government charge,” added the court.

The petitioners have argued before the court that service charge, which has been present for the last several years, is a “traditional charge” and is disturbed amongst those staffers who “are not before the customers”.

They have contended that the CCPA order is arbitrary, untenable and ought to be quashed for being in violation of Article 19 (1)(g) (right to trade) of the Constitution and claimed the outlets have a right to price their food.

Seeking dismissal of the petitions, the CCPA, in its counter affidavit, has said the petitioners have totally failed to appreciate the rights of the consumers, whose hard-earned money is unjustly collected automatically or by default in the name of service charge.

It has added that the objective of collecting mandatory service charge from consumers over and above the price of food items and applicable taxes is “unlawful” as no proportionate service is separately provided to consumers.

The CCPA has also prayed for vacation of the stay order.

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