In a significant development for the hospitality industry, the Delhi High Court has adjourned the hearing on appeals challenging the prohibition on mandatory service charges by restaurants and hotels. The appeals, filed by the National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India (FHRAI), will now be heard on May 23, 2025.
Background of the Case
The appeals arise from a March 2025 ruling by a single-judge bench, which upheld the Central Consumer Protection Authority (CCPA) guidelines of 2022. These guidelines restrict restaurants and hotels from automatically adding service charges to food bills, declaring such charges as voluntary contributions rather than enforceable levies.
What Happened in Court?
A division bench of Chief Justice DK Upadhyaya and Justice Tushar Rao Gedela was scheduled to hear the matter on Friday. However, due to a “very heavy board” and ongoing time-bound hearings in the post-lunch session, the matter could not be taken up. Senior Advocate Siddharth Luthra, appearing for the petitioners, sought urgent listing citing the need for interim relief—a stay on the single-judge’s decision.
Initially, the bench indicated that the matter might be pushed until after the court vacation. However, considering the urgency, the Court listed it for hearing on May 23, 2025.
It is noteworthy that the appeals were previously listed on April 29 but could not be heard due to technical glitches with the Court’s virtual hearing system.
Key Observations of the Single-Judge Order
The single-judge had held:
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Service charges and tips are voluntary and not enforceable by default.
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Automatically including service charges in food bills is illegal and misleads consumers, who may confuse it with government-imposed taxes.
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Such practices amount to coercive enforcement, lacking any valid contractual basis.
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The court imposed a cost of ₹1 lakh each on the petitioners, to be deposited with the CCPA Consumer Welfare Fund.
The judge also advised the CCPA to allow a change in terminology—suggesting alternatives like ‘voluntary contribution’, ‘staff contribution’, or ‘staff welfare fund’—to clarify the non-compulsory nature of such payments.
Implications for the Restaurant Industry
The verdict has stirred significant debate across the hospitality sector, with many restaurants arguing that service charges support staff welfare. The petitioners are hopeful that the Division Bench will reconsider the single-judge ruling and provide interim relief allowing the collection of service charges with customer awareness.
Case Title
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National Restaurant Association v. Union of India & Anr