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HomeNewsDelhi High Court directs restaurants to replace 'service charge' with 'staff contribution'...

Delhi High Court directs restaurants to replace ‘service charge’ with ‘staff contribution’ and imposes 10% cap on bills

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In a significant judgment, the Delhi High Court has mandated that the Federation of Hotel and Restaurant Association of India (FHRAI) must substitute the widely employed term ‘service charge’ with ‘staff contribution’ on restaurant bills. According to a report by TOI, this ruling also includes a provision that limits this charge to a maximum of 10% of the total bill amount.

Justice Prathiba M Singh, who presided over the case, underscored the requirement for all FHRAI-affiliated establishments, encompassing restaurants and hotels, to conspicuously feature a notice on their menu cards. This notice will explicitly convey to customers that gratuity is not compulsory once the staff contribution has been settled.

The interim directive from the Delhi High Court stems from a joint plea submitted by both the FHRAI and the National Restaurant Association of India (NRAI). They contested the regulations introduced by the Central Consumer Protection Authority (CCPA). Among these provisions, the CCPA discourages the automatic inclusion of a service charge on invoices. Additionally, the CCPA informed the court that certain restaurants have been imposing a service charge as high as 20%.

As reported by Bar & Bench, “The Delhi High Court was informed that while FHRAI agreed to change the terminology, NRAI has not.”

The case is set for additional proceedings on October 3, at which point it is anticipated that more clarity regarding this issue will be forthcoming.

It’s important to highlight that the Central Consumer Protection Authority (CCPA) issued comprehensive guidelines to hotels and restaurants regarding the collection of service charges last year. These guidelines explicitly stated that “service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.” In response, the NRAI maintained its position that imposing a service charge is not illegal. They argued, “Guidelines, by their very nature, are merely for guidance, and if there is a need for such a change, it must be accomplished through either new legislation or an amendment to existing laws. Neither the government nor any authority can interfere with a business owner’s decision in this matter. These repeated guidelines appear to be an attempt to initiate a campaign against the restaurant industry’s practices without a legal basis.”

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