Restaurant Association welcomes Delhi High Court’s order staying the ban on service charge

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The National Restaurant Association of India has welcomed the Delhi High Court order staying the ban on the levy of service charges by the industry.

“NRAI has always been steadfast in its assertion that there is nothing illegal in levying of service charge and it is a very transparent system. We are very glad that the Delhi High Court has upheld and confirmed this view,” NRAI said in a statement.

“NRAI will soon send out advisories to all its members about the conditions spelled out by the court and will urge all members to comply with them in totality,” it said.

The association had moved to the Delhi High Court earlier in July after the Central Consumer Protection Authority (CCPA) had issued a guideline to the industry imposing a ban on service charges by the industry. According to CCPA guidelines, the service charge must be paid at the discretion of consumers and should not be made mandatory by the restaurants.

The CCPA had also termed levying of service charges as an “unfair trade practice” in its guidelines. Subsequently, NRAI filed a writ in the Delhi High Court, seeking clarification on the legality of these guidelines. The court had been hearing the matter for the past two weeks.

Delhi High Court while staying the ban also asked the restaurants to display the services charges on their menu and also at other places to make customers aware of the charges and said that the charge cannot be levied on any takeaway orders.

The court in the order also noted the Dewan Chaman Lal Committee which submitted its report on the levy of service charges way back in 1958. “Deprecating the practice of permitting serving staff to take individual tips, that committee had recommended the implementation of the continental system of service charge both with regards to its collection as well as a disbursement,” it said.

Furthermore, it also mentioned Wage Board constituted by the Chief Commissioner of Delhi in terms of a notification dated 28 October 1964. “That board in terms of the recommendations framed and stated to have been accepted, had also provided for the levy of a service charge on costumers’ bills varying from 5 percent to 10 percent,” said Delhi High Court.

“The collections so made were then to be distributed with 10 percent going to a welfare fund, 15 percent being retained by the management towards breakages and 45 percent to be distributed to the workmen and employees of the establishment and the remaining 30 percent to be allocated to the wage bill,” it noted.

The Delhi High Court in its order also raised doubt whether the issue of pricing and the levy of a service charge would fall within the ambit of Section 2(47) of the Consumer Protection Act, 2019 and cited two previous cases where consumer courts had held that restaurants can levy service charges and that it is not an unfair trade practice.

With these observations in the backdrop, the court removed the ban on the services charges by the CCPA and listed the matter for further hearing on November 25.