Change 'service charge' to staff welfare fund: court to hotels

New Delhi: The Delhi High Court has asked the hotels and restaurants to consider changing the term "service charge" to "staff welfare contribution". On Wednesday, the court observed that the term service charge provides the impression that it is a government-imposed charge, Asian News International reported.

The two bodies, NRAI and FHRAI, which represent hotels and restaurants, were told to conduct a meeting with their members and submit before the court how many are willing to inform consumers that the service charge is not mandatory but a voluntary contribution.

The court of Justice Prathiba M Singh asked the bodies to list the hotels and restaurants that impose service charges.

Representing Central Consumer Protection Authority (CCPA), Additional Solicitor General (ASG) Chetan Sharma told the court that hotels and restaurants are misinterpreting the court's interim order and are using the same to argue legitimacy in levying service charges.

Meanwhile, advocate Lalit Bhasin contented that service charge is a universal practice, has existed for the past 80 years and was recognized by the Supreme Court as well as the High Court. The practice is carried out for the equal distribution of tip amounts among the staff of the hotel or restaurant, he said.

The court directed the bodies to file an affidavit and listed the matter for further hearing on July 24.

After CCPA issued guidelines on July 4 2022, the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI) filed petitions to challenge the same. On July 2022, the Delhi High Court stayed the CCPA's guidelines that restrained hotels and restaurants from levying service charges.

The HC had issued notice to the Ministry of Consumer Affairs and placed conditions that restaurants must display service charge components in the price of the food. Restaurants were barred from adding service charges on takeaway or delivery of food too.

CCPA argued that customers must not be forced to pay and added that anything beyond the maximum retail price is unfair trade practice, reasoning that the guidelines it issued were to protect the consumer's rights. It added that it received many complaints that restaurants are denying entry to customers who are not paying a service charge.

However, the court maintained that entering is a matter of choice. "Don't enter the restaurant if you don't want to pay," ANI quoted the court.

As per FHRI's petition, CCPA could only issue guidelines and restraining them from levying service charges is arbitrary.