National Restaurant Association of India & Ors. Vs Union of India & Anr. (Delhi High Court)
Delhi High Court, in the case of the National Restaurant Association of India & Ors. Vs Union of India & Anr., upheld guidelines issued by the Central Consumer Protection Authority (CCPA) prohibiting the mandatory collection of service charges by restaurants. The court affirmed the CCPA’s authority under Section 18(2)(l) of the Consumer Protection Act, 2019 (CPA, 2019), to issue such guidelines in the interest of consumers, stating that compliance with these guidelines is mandatory. The court dismissed the petitioners’ argument that the guidelines infringed upon their fundamental right to practice their trade or business under Article 19(1)(g) of the Constitution, reasoning that the regulations serve the larger interest of consumers and are legally sound.
The judgment firmly established that any charge termed “service charge,” often referred to colloquially as a tip, must be purely voluntary. The court found the practice of imposing a mandatory service charge to be coercive, detrimental to consumer interests, and a violation of consumer rights. Furthermore, the court classified the mandatory collection of service charges, regardless of the terminology used, as misleading, deceptive, and constituting an “unfair trade practice” under Section 2(47) of the CPA, 2019. The misleading nature arises partly from consumers potentially confusing it with government-levied taxes like GST or service tax.
The court addressed and rejected justifications put forth by the restaurant associations. The claim that service charges were essential components of agreements or settlements with staff was dismissed due to a lack of supporting evidence presented to the court. Similarly, the argument that customers implicitly agree to pay the service charge by entering the establishment and ordering from a menu displaying the charge was deemed untenable. The court characterized such menu-based imposition as an “onerous” condition amounting to an “unfair contractual condition” under Section 2(46) of the CPA, 2019. It emphasized that consumer rights cannot be overridden by contractual arguments when the underlying practice itself is unlawful.
While prohibiting mandatory imposition, the court clarified that consumers remain free to offer a voluntary tip or gratuity for satisfactory service. However, crucial to this distinction is that such amounts cannot be automatically added to the bill by the establishment; the decision and the amount must be left entirely to the customer’s discretion. Acknowledging the potential for confusion caused by the term “service charge,” the court suggested that the CCPA might consider permitting alternative, clearer nomenclature such as ‘voluntary contribution’, ‘staff contribution’, or ‘staff welfare fund’ to denote voluntary payments intended for staff.
In conclusion, the Delhi High Court validated the CCPA’s guidelines, deeming them necessary for consumer protection. The writ petitions filed by the restaurant associations challenging the guidelines were dismissed. The court further imposed costs of Rs. 1 lakh on each petitioner, payable to the CCPA for consumer welfare activities. The judgment mandates adherence to the guidelines by all restaurant establishments, empowering the CCPA to take enforcement action against any violations.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
