Justice Yashwant Varma (Delhi High Court) has issued a notice seeking a response from the CCPA in the pleas filed against the CCPA guidelines that prohibit the levying of service charges on food bills by hotels and restaurants dated July 4, 2022. The HC has stayed the guidelines laid down by the Central Consumer Protection Authority (CCPA) prohibiting hotels and restaurants from levying service charges automatically or by default on the food bill.
The restaurants association (NRAI) moved to the court to challenge the guidelines laid by the CCPA that deems the levying of service charges on food bills by restaurants and hotels illegal. The petition by NRAI pleads that the levy of service charge, when displayed on the menu/price list and informed to the customer in advance, becomes an agreement between the parties and is not a violation of the law. The petition further highlights that there are no laws to disallow the levying of service charges and points out that in the absence of due authentication and promulgation of the guidelines, the guidelines (CCPA guidelines for the prevention of unfair trade practices, issued July 4, 2022) set forth cannot be treated as an order of the government.
The CCPA issued new guidelines prohibiting hotels or restaurants from collecting service charges from consumers automatically or by default in the bill on July 4, 2022, taking note of the fact that placing an order involves consent to pay the prices of food items displayed on the menu along with applicable taxes and charging anything other than the said amount would amount to unfair trade practice under the Consumer Protection Act, the CCPA.
The CCPA order stated,
“It has come to the notice of the CCPA through many grievances registered on the National Consumer Helpline that restaurants and hotels are levying service charges in the bill by default, without informing consumers that paying such charge is voluntary and optional. Further, service charge is being levied in addition to the total price of the food items mentioned on the menu and applicable taxes, often in the guise of some other fee or charge. It may be mentioned that a component of service is inherent in the price of food and beverages offered by the restaurant or hotel. Pricing of the product thus covers both the goods and services component. Charging anything other than the said amount would amount to unfair trade practice under the Act.”
In the plea filed by Advocates Nina Gupta and Ananya Marwah on behalf of the National Restaurant Association of India, it is alleged that the CCPA guidelines are arbitrary and untenable inasmuch as there is no law that disallows restaurants to charge a service charge. “There has neither been a new law nor an amendment in the existing laws which make charging of the service charge illegal. In the absence of due authentication and promulgation of the guidelines, the contents thereof cannot be treated as an order of the Government,” read the plea.
Justice Varma noted that the issue of a levy of a service charge by the hotel industry was noticed way back by the Dewan Chaman Lal Committee which had submitted its report in June 1958 recommending the implementation of the continental system of service charge both with regards to its collection as well as its disbursement.
Raising doubt on 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, the court observed that the matter requires consideration and in lieu thereof, stayed the July 4 guidelines till the next date of listing.
However, the stay is subject to the members of the petitioner Association ensuring that the proposed levy of a service charge in addition to the price and taxes payable and the obligation of customers to pay the same is duly and prominently displayed on the menu or other places where it may deem to be expedient. Further, the members of the petitioner Association shall undertake not to levy or include a service charge on any “take away” items.
The matter will be next heard on November 25.