In its latest ruling over services charges, the Delhi High Court said the stay on the Central Consumer Protection Authority (CCPA) guidelines will continue and restaurants are free to charge service charge till next hearing. The Delhi High Court also allowed time to the restaurant association to file a reply to the plea by the CCPA challenging the earlier order that had put a stay on guidelines barring service charge.
While hearing the case on Thursday, the court, however, said that restaurants are bound in law to pay their employees and the customers can't be made liable for it.
Meanwhile, placing forth it's argument, the CCPA reiterated that levying of service charge is perceived by the public as a government levy.
"Levy of service charge has been presented before courts as a welfare measure for employees. (There's an) unfair contract imposed by restaurants on consumers to levy service charge," the CCPA told the court on Thursday.
It further argued: "A consumer has no discretion and is forced to pay service charge even if the service or food is not as per expectations."
The Delhi High Court was hearing an appeal by the Centre against the order staying its guidelines prohibiting hotels and restaurants from levying service charges automatically on food bills.
Last month, the Delhi High Court stayed the order issued by the CCPA restraining the levying of service charges by restaurants and hotels. The CCPA, which comes under the Union Ministry of Consumer Affairs, Food and Public Distribution, had then challenged this decision.
During the hearing earlier this week, the high court questioned why restaurants should recover service charges from consumers as an additional and separate levy.
What is the argument about government levy and unfair contract? Read on to know about the case in detail:
'Service charge perceived as govt levy": What court had said
Earlier this week, the court said that a common man perceives service charge as a government levy and restaurants can increase their food prices to absorb this charge instead of recovering it in the form of an additional charge over and above the total bill.
The court also questioned whether consumers can be compelled to pay service charges. It also asked why restaurants are not considering other avenues like raising the salaries of employees.
"Why don't restaurants increase prices? If restaurants are worried about staff, then increase salaries," the court said.
"Increase your food price. No problem. Because you are entitled to fix a rate for your food but don't levy it separately," the court told the restaurant associations.
'If we increase prices of products...': What restaurant associations said
The counsel appearing for one of the restaurant associations told the Delhi High Court on Thursday that the practice of service charge has been going on for 70 years. "If we increase prices of products, it will unduly benefit delivery apps like Zomato."
"The government can't hope to control pricing power of enterprises and restaurants are free to levy service charge in law," it said. The association also noted that customers giving tips is restricted only to waiters. "Staff for cooking and cleaning are not compensated," it said.
Restaurant Associations had earlier said that the service charge was not a government levy and it was for the benefit of the restaurant employees and was not a substitute for tips,.
The 'unfair contract'
Restaurants Association argued that if customers agree to order food after seeing on the menu that a service charge will be levied, they then enter into a private contract with the restaurant.
The court then questioned this approach, asking about those who are not familiar with the law and deciding to walk in. "A person who does not know the law or an illiterate person goes to a restaurant, you mean to say he is entering into a contract?" the court remarked.
The CCPA, which was established under the Consumer Protection Act 2019, issued the guidelines after taking note of many grievances registered on the NCH regarding restaurants and hotels levying service charges on consumers.
Why did court put stay on Centre's guidelines
The court, in its common order, had said that the stay is subject to the members of the petitioners ensuring that the levy of service charge in addition to the price and taxes and obligation of the customer to pay the same is duly and prominently displayed on the menu or other places.
"Further, the members will also undertake not to levy service charges on any takeaway items," it had added.
The National Restaurant Association of India (NRAI) claimed before a single judge that the prohibition under the July 4 order was arbitrary, untenable and ought to be quashed as it has been issued without an appreciation of the facts and circumstances.
Why Centre challenged the stay order
ASG Sharma, appearing for the government, argued the single judge order to stay the guidelines was passed in violation of principles of natural justice.
In the appeal by the Centre as well as Central Consumer Protection Authority, the appellants said that the guidelines, which were admittedly issued in the public interest, were stayed without affording reasonable and adequate opportunity to the appellant to explain their position.
"The impugned order has been passed post-haste without appreciating that the guidelines have been issued for safeguarding the rights and interests of the consumers and seek to protect the consumers from unfair trade practices and violation of consumer rights due to mandatory collection of service charge and adding such charge automatically or by default in the food bill without allowing the consumer the choice or discretion to decide whether they want to pay such charge or not," the appeal said.
Since another appeal against the single judge order was yet to be listed, the counsel for the respondents urged the court to list the present case, which pertained to the petition by the Federation of Hotels and Restaurant Associations of India, for hearing on the same day.
Levy of service charge has been a standing practice in the hospitality industry for more than 80 years which is evident from the fact that the Supreme Court took notice of this concept way back in 1964, the petition had said.
The levying of service charges has a socio-economic angle as well. The system of levying service charges ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant. This ensures that the benefit is divided equally among all the staff workers including the utility workers and back staff, it had added.
(With inputs from PTI)