Delhi High Court rules service charge cannot be made mandatory by restaurants on food bills

Service charges and tips are voluntary contributions from consumers and cannot be enforced, the High Court said

The Delhi High Court ruled on Friday that service charges and tips are voluntary contributions from consumers and cannot be enforced as mandatory payments on food bills by restaurants or hotels.

Justice Pratibha M Singh pronounced the judgement and dismissed two petitions filed by Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI), which contested the Central Consumer Protection Authority (CCPA) guidelines banning hotels and restaurants from levying mandatory service charge on food bills.

The July 2022 CCPA guidelines were designed to prevent unfair trade practices and ensure consumer rights are upheld in relation to service charge imposition. However, they were stayed by the High Court later in the same month.

Maintaining the guidelines on Friday, the court dismissed the writ petitions, ordering Rs 1 lakh each to be deposited with CCPA for utilisation for consumer welfare, according to a report by Live Law. The court stated that requiring a mandatory service charge on food bills violates the law, while voluntary tipping by consumers remains permitted.

The court held that the CCPA was not merely an advisory body but was empowered to issue guidelines for prevention of unfair trade practices and for protecting consumer interest.

“The CCPA is an authority empowered to pass the guidelines under CPA 2019. Issuing guidelines is an essential function of CCPA. The same has to be mandatorily complied with by all the restaurants,” the court said.

On December 13, 2024, the court had reserved its verdict on the subject.