Delhi High Court has issued an interim order directing members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term ‘Service Charge’ with ‘staff contribution’ while adding that the amount charged should not exceed 10% of the total bill.
Service Charge
- Service charge is a fee that is sometimes added to a bill or invoice by businesses, particularly in the hospitality industry such as restaurants, hotels, and banquet halls.
- It is intended to cover the cost of the service provided by the staff, including waiters, servers, and other service personnel.
- It also may be called a customer service fee or maintenance fee.
- Restaurants and hotels generally levy a service charge of 10% on the food bill.
Background
The order was passed on pleas filed by the National Restaurant Association of India (NRAI) and the FHRAI, challenging the July, 2022, guidelines issued by the Central Consumer Protection Authority (CCPA) .The CCPA guidelines stipulated that service charges should not be collected from consumers under any other name, and they should be optional and voluntary.Alternatively, they could request that the eatery remove the service charge from the bill.A complaint against unfair trade practices could also be lodged electronically with the Consumer Commission through the eDaakhil portal for speedy redressal or otherwise.
The guidelines also prohibited the addition of service charges to the bill automatically, without informing consumers.These guidelines were introduced in response to consumer grievances, as many restaurants and hotels were imposing service charges without clearly stating that payment was voluntary.The guidelines were issued by the CCPA under Section 18(2)(1) of the Consumer Protection Act, 2019.
Note: Under Section 18(2)(1) of the Act, CCPA has issued guidelines to prevent unfair trade practices and protection of consumer interest with regard to levy of service charge in hotels and restaurants
Court’s Recent Decision
- The FHRAI indicated its willingness to rename “service charge” to “staff contribution.” However, the NRAI opposed this change, citing past decisions and the fact that a significant percentage of its members imposed service charges.
- The court noted the lack of uniformity within the FHRAI’s membership regarding the imposition of service charges.
- Consequently, the court directed FHRAI members to adopt the term ‘staff contribution’ and cap it at 10% of the total bill amount.
Relationship with 2017 Guidelines
- The 2022 service charge guidelines were intended to complement, not replace, the 2017 guidelines issued by the Central Government. These 2017 guidelines had prohibited the levy of service charges by hotels and restaurants without the express consent of customers, addressing concerns about unfair trade practices.
- In conclusion, the Delhi High Court’s recent decision to rename ‘service charge’ to ‘staff contribution’ with a 10% cap represents a significant development in the ongoing legal battle between industry associations and consumer protection authorities.
- This case highlights the importance of transparency and consumer choice in restaurant billing practices, aligning with India’s consumer protection regulations.