Delhi High Court Issues Interim Order Capping Service Charge At 10%

The Delhi High Court bench of Justice Prathibha M. Singh has issued an interim order to be applicable to the Federation of Hotels and Restaurants Association of India regarding the issue of service charges in the food service industry.

The bench said that the service charges will now be officially referred to as "staff contribution charges." This change aims to provide greater clarity to customers regarding the nature of the charge.

The "Staff Contribution Charge" would be capped at a maximum of 10%, excluding the Goods and Services Tax, the bench said. The move seeks to ensure that the charge remains reasonable and within acceptable limits.

Hotels and restaurants would also be required to prominently display the "Staff Contribution Charge" in bold on their menu cards to enhance transparency and ensure that customers are well-informed about the additional cost.

This order is an interim measure and not a final judgment. The next hearing on this matter is scheduled for Oct. 3, where further deliberations and decisions are expected.

Previously, the Delhi High Court directed hotels and restaurants to avoid indicating that service charges were being imposed on customers with the court's approval.

Justice Prathiba M. Singh, presiding over the bench, emphasised that the high court's stay order on the Central Consumer Protection Authority's prohibition of service charges should not be displayed on signage in a manner that could mislead customers into thinking that the Delhi High Court has sanctioned the service charge.

The guidelines set forth by the Central Consumer Protection Authority have banned restaurants and hotels from imposing service charges. These guidelines faced legal challenges from both the restaurant and hotel associations in July of the previous year.

Subsequently, the central government urged the court to examine the issue, highlighting that the guidelines were designed to safeguard consumer interests. Additionally, the government sought the removal of the temporary suspension from the guidelines.

However, the court declined this request, asserting that it was essential to allow all concerned parties the opportunity to present their arguments before making a decision.