Delhi High Court Limits Service Charge to 10%, Rebrands as Staff Contribution
Delhi High Court Limits Service Charge to 10%, Rebrands as Staff Contribution

Delhi High Court has directed the Federation of Hotel and Restaurant Association of India (FHRAI) to substitute the term 'service charge' with 'staff contribution' and impose a maximum limit of 10% on the charge applied to bills.

Justice Prathiba M Singh has also mandated that hotels and restaurants affiliated with FHRAI clearly state on their menus that tips are unnecessary after making staff contributions.

It's important to note that this directive does not extend to eateries linked with the National Restaurants Association of India (NRAI).

This ruling is a result of a petition filed jointly by FHRAI and NRAI in opposition to the guidelines set forth by the Central Consumer Protection Authority (CCPA) on July 4, 2022.

These guidelines barred hotels and restaurants from automatically including or defaulting service charges on food bills. Notably, the High Court had temporarily halted the enforcement of these guidelines on July 20, 2022.

FHRAI has consented to alter the wording and exhibit staff contributions on menus, whereas NRAI has not agreed to do so. Senior Advocate Sandeep Sethi, who represented FHRAI, clarified that there are no service charges applied to food deliveries to customers' homes.

The central issue before the court revolved around the authority of the CCPA to issue guidelines effectively prohibiting service charges. Justice Singh underscored that, even though CCPA has jurisdiction, the court was addressing this matter within its writ jurisdiction.

This was done in light of reports indicating that certain restaurants were imposing service fees as high as 20%, impacting the entire nation.


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