Delhi High Court Rules Against Mandatory Service Charges in Restaurants

In a landmark decision, the Delhi High Court has ruled that restaurants and hotels cannot impose service charges or tips on customers, declaring such practices a violation of consumer rights.

Justice Pratibha M. Singh emphasized that service charges—commonly referred to as tips—must remain voluntary. "The practice of mandatorily collecting service charge in a coercive manner is contrary to consumer interests," the court observed.

The ruling came in response to petitions filed by the Federation of Hotels and Restaurant Associations of India (FHRAI) and the National Restaurant Association of India (NRAI), both of which were fined ₹1 lakh each. Restaurant bodies have indicated plans to challenge the verdict in the Supreme Court.

The court upheld the 2022 guidelines issued by the Central Consumer Protection Authority (CCPA), which prohibit automatic levying of service charges on food bills. It noted that the practice misleads consumers, who may confuse it with government-imposed taxes, and also results in additional taxation on the service charge itself.

Calling the practice "camouflaged and coercive," the court labeled it an unfair trade practice under the Consumer Protection Act, 2019. It further rejected restaurant associations' claims that service charges were part of labor agreements, stating that no supporting evidence was provided.

Justice Singh highlighted that only the government holds the authority to impose mandatory levies. “Service charges should be in the form of a gratuity for satisfactory service, not an imposed fee,” she said. The court also suggested renaming it to terms like ‘voluntary contribution’ or ‘staff welfare fund’ to avoid confusion.

Government Response & Next Steps

Consumer Affairs Minister Pralhad Joshi welcomed the verdict, reaffirming that service charges remain voluntary. Meanwhile, NRAI representatives hinted at appealing the ruling, arguing that it could affect restaurant employees.

Consumers facing coercion to pay service charges can file complaints via the National Consumer Helpline at 1915.