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No law that disallows restaurants from levying service charges: National Restaurant Association pleads Delhi High Court

Socio Legal Corp

Last Updated on July 19, 2022 by

Written by Vidisha Mathur

In the case, NRAI and Others v UOI and Others, the National Restaurant Association of India has challenged the guidelines laid down by the Central Consumer Protection Authority on July 4, 2022, on the grounds that no law prohibits hotels and restaurants from levying a service charge, neither has any existing law been amendment to render such charge by default illegal.

Advocates Nina Gupta and Ananya Marwah appearing for the petitioner association plead that in the absence of due authentication and promulgation of the guidelines, they cannot be treated as an order of the government. They have also claimed that the stipulations laid down by the CCPA were arbitrary, unwarranted, and should be set aside.

It is argued that the CCPA had no authority to establish such regulations as service charge being levied is a matter of contract shared by the consumer and the establishment. It may only be regulated if the act amounts to unfair trade practices.

Service charge is a universal trade practice in the hospitality industry, which was recognized by the Supreme Court in Management of Wenger and Co. v their Workmen in 1964. The Supreme Court, High Courts, National Consumer Redressal Commission, and even the Monopolies and Restrictive Trade Practices Commission have considered and acknowledged the legal validity, rationale, and justification of Service Charges.

Various pronouncements also upheld the importance of service charges as a substitute for tips and the petitioner counsel herein contends that the collection of such charges allows equal distribution and benefit to the staff including back-end workers and utility staff – who otherwise do not benefit from tips.

Justice Yashwant Varma heard the plea on Monday i.e., July 18, 2022, and has deferred the hearing to Thursday, July 21.

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