'Service charge' gives impression it's levied by govt, consider using 'staff welfare fund': Delhi HC to hotel bodies

New Delhi [India], April 12 : The Delhi High Court on Wednesday asked the body representing the restaurants and hotels to consider changing the term 'service charge' to 'staff welfare fund' or 'staff welfare contribution'.

The High Court said that the term service charge gives the impression that it is a government-imposed charge.

Justice Prathiba M Singh asked the two bodies (NRAI and FHRAI) to hold a meeting of their members and inform the Court how many of their members are willing to inform the consumers that service charge is not mandatory and is a voluntary contribution.

The Court also asked the bodies to inform it about the number of hotels and restaurants imposing service charges.

Additional Solicitor General (ASG) Chetan Sharma, appearing on behalf of the Central Consumer Protection Authority (CCPA), submitted that hotels and restaurants have started misinterpreting the Court's interim order and, in fact, using the order to give legitimacy to the service charge.

After that, the bench said that the Court's interim orders staying the CCPA guidelines, should not be shown as the approval of service charge.

On the other hand, advocate Lalit Bhasin argued that the practice of service charges is universal and it has been in existence for the last 80 years. It is also recognised by the Supreme Court and the High Court.

He also argued that the practice of service charges is for the equal distribution of tip amounts among the staff of the hotel or restaurant.

The bench has also directed the bodies to file an affidavit and listed the matter for further hearing on July 24, later this year.

The Court was hearing petitions filed by the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI) challenging the guidelines issued by CCPA on July 4, 2022.

On July 20, 2022, the Delhi High Court stayed CCPA's guidelines restraining the levy of service charges by restaurants.

The predecessor bench of Justice Yashwant Varma had also issued notice to the Ministry of consumer affairs, CCPA on the petition.

The HC while issuing the notice had set down conditions that restaurants to prominently display service charge components in the price of the food.

Restaurants will not be able to charge service charges on takeaway/delivery of food, the High Court said.

The counsel for CCPA while objecting had said, "Consumers should not be forced to pay".

He also said that anything beyond the maximum retail price (MRP) is unfair trade practice. The guidelines were issued to protect the right of the consumer.

The counsel added that various complaints were received that restaurants were restraining entering consumers who were not paying the service charge.

HC said, "It's a matter of choice. Don't enter the restaurant if you don't want to pay".

The petition moved by FHRI stated that CCPA can only issue guidelines. The guidelines restraining the levying of service charge is arbitrary.

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