Restaurants Cannot Compel Customers to Pay Service Charges
On 28th March 2025, the Hon’ble High Court of Delhi marked a notable step towards protecting consumer rights in the case of the National Restaurant Association of India & Ors. vs. Union of India & Ors. In this significant ruling, the Court upheld the Central Consumer Protection Authority(CCPA) guidelines, prohibiting the levy of mandatory service charges by restaurants.
The dispute arose when the restaurant associations, namely, the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI), sought quashing of the impugned guidelines, contending that it violates their right guaranteed under Article 19(1)(g) and CCPA has no authority to issue such directions.
After examining legal provisions and precedents, the Court noted that CCPA is not merely a recommendatory body. One of its essential functions is to protect the interests of consumers. Hence, it is very well within its jurisdiction to issue such directions. The Court stated that restaurants are free to price their products as much as they need, but once the pricing is over, they cannot force the customers to pay the service charges over and above the price. The mere display of service charges on its menu card or outside its establishments would not authorize it to impose service charges as a matter of default. The Court highlighted that a Service Charge is a voluntary tip/gratuity given after considering the quality of services. It is the discretion of customers to pay or refuse. Imposing compulsory and mandatory service charges results in unfair trade practices under Section 2(47) of The Consumer Protection Act, 2019. The Court, reiterating the principle of reasonable restriction, held that the guidelines in any manner would not violate fundamental rights guaranteed under Article 19(1)(g) as it is to protect the broader public interest.
This ruling assures transparency in the billing process and sets a landmark precedent for future service charge cases.