The Delhi High Court has upheld the 2022 guidelines issued by the Central Consumer Protection Authority (CCPA), ruling that service charges and tips are voluntary and cannot be imposed mandatorily on food bills by restaurants or hotels.

Justice Prathiba M. Singh dismissed petitions filed by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI), which had challenged the CCPA guidelines prohibiting the automatic levy of service charges. The judgment, which was reserved in December last year, was delivered on Friday.

Rejecting the petitions, the court directed both associations to deposit ₹1 lakh each with the CCPA for consumer welfare. It clarified that while consumers are free to offer tips voluntarily, restaurants cannot compel them to pay service charges.

The Court emphasized that the CCPA is not merely an advisory body but has the authority to issue guidelines to prevent unfair trade practices and safeguard consumer interests. It underscored that consumer rights take precedence over restaurant interests, highlighting that societal welfare is paramount.

The Court also noted that mandatory service charges on food bills could mislead consumers into believing they are part of taxes such as GST or service tax, thereby constituting an unfair trade practice.

The CCPA had defended its guidelines, arguing that a compulsory service charge violates consumer rights and runs counter to provisions on unfair contracts and restrictive trade practices under the Consumer Protection Act. The authority also pointed out that paying a service charge does not equate to purchasing a distinct product or service.

The guidelines, issued on July 4, 2022, had initially been stayed by a coordinate bench, which permitted service charges only if prominently displayed on menus or other locations. However, Justice Singh later clarified that the stay order should not be misrepresented on menu cards or display boards to suggest that the court had approved the service charge.

The petitioners had contended that service charges had been a longstanding industry practice and were levied transparently after notifying customers through menu cards and notices in restaurant premises. They argued that the CCPA’s guidelines were arbitrary and should be quashed.

However, with the Court upholding the guidelines, restaurants and hotels can no longer impose service charges by default, reinforcing consumer choice in deciding whether to pay them