Delhi High Court Caps Service Charge at 10%, Renames as 'Staff Contribution'

The Delhi High Court has ordered the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term 'service charge' with 'staff contribution' and limited it to 10% of the bill in a recent interim order. Justice Prathiba M Singh also directed FHRAI-affiliated hotels and restaurants to specify on their menu cards that tips are not required after paying staff contributions. However, the order doesn't apply to restaurants associated with the National Restaurants Association of India (NRAI).

This decision comes in response to a plea filed by FHRAI and NRAI against the Central Consumer Protection Authority's (CCPA) guidelines issued on July 4, 2022. The guidelines prohibited hotels and restaurants from automatically adding or defaulting service charges to food bills, and they were temporarily stayed by the High Court on July 20, 2022.

While FHRAI agreed to change the terminology and display the staff contribution on menus, NRAI did not. Senior Advocate Sandeep Sethi, representing FHRAI, clarified that no service charge is imposed on food home deliveries. The main issue before the court was the CCPA's authority to issue guidelines to effectively ban service charges. Justice Singh emphasized that, despite CCPA jurisdiction, the court was addressing the matter within the writ jurisdiction, considering reports of some restaurants charging service fees as high as 20%, which affects the entire country.

Author: Anushka Taraniya

News Writer, MIT ADT University