Two major hospitality industry bodies — the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI) — have moved the Delhi High Court against a single judge’s order which declared that service charge and tips are voluntary and cannot be made compulsory on food bills.
The appeals were listed before a division bench of Chief Justice DK Upadhyaya and Justice Tushar Rao Gedela. However, due to technical issues in the court’s video conferencing (VC) system, the matter was adjourned. The next hearing is scheduled for May 9.
This legal battle arises from a March 2024 judgment where the single judge upheld the 2022 guidelines issued by the Central Consumer Protection Authority (CCPA). These guidelines clearly prohibit restaurants and hotels from automatically or by default adding service charge to food bills.
“The mandatory collection of service charge on food bills is contrary to law,”
— observed the single judge.
In rejecting the petitions filed by NRAI and FHRAI, the judge dismissed the writ petitions and imposed a cost of ₹1 lakh each, to be deposited with the CCPA for consumer welfare purposes.
The court clarified that while voluntary tipping is allowed, adding a service charge by default is not permissible. The discretion must lie entirely with the consumer.
“If consumers wish to pay any voluntary tip, the same is not barred. The amount, however, ought not to be added by default in the bill/invoice,”
— held the Court.
The judgment also emphasized that the way restaurants enforce the service charge can be coercive, and in some cases, confuses customers into believing it is a government-imposed tax like GST or service tax.
“Collecting a mandatory service charge as a matter of default without giving a choice to the consumer cannot be contended to be contractually binding,”
— the judge added.
Additionally, the Court suggested that the CCPA consider allowing restaurants to change the term ‘Service Charge’ to something more transparent such as ‘voluntary contribution’, ‘staff contribution’, or ‘staff welfare fund’.
This case is significant as it touches upon the consumer’s right to choose, and challenges long-standing practices in the restaurant industry. The final outcome may have a broad impact on how eateries across India handle billing and customer payments.
Title: National Restaurant Association v. Union Of India & Anr
