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Synopsis

The National Restaurant Association of India (NRAI) on Tuesday submitted before the Delhi High Court that Service Charges has always been matter of bargain and contract between Management-Workmen.

The bench of Justice Prathiba M Singh was hearing the petitions against guidelines prohibiting hotels and restaurants from automatically levying service charges on food bills. Today, the arguments on the final hearing in the matter began.

Advocate Lalit Bhasin, on behalf of the NRAI submitted that the charge is levied for the purposes of various workers and infact forms part of the settlements which management enters into with the workmen. He submitted that the term ‘service charge’ has to be considered with its ordinary meaning. Bhasin relied upon various dictionaries to argued that service charge is clearly understood in the language.

The counsel contended that under the Labour Law, jurisdiction is vested with the Labour Court etc, recognized service charge has been a component of the charges collected by the management for the “benefit of the workmen”. “The same is not governed by the Consumer Protection Act, but is part of Labour Law jurisprudence”, he submitted.

Bhasin relied on various judgments and submitted that the Apex Court has recognized that the settlements between workmen and management cannot even be set aside by law. He also submitted that the ‘service charge’ was an effect of an expert committee report by Dewan Chamanlal which recognized that it can be collected from the consumers.

The counsel submitted that there are broadly two types of service charge, one is known service charge and the other is unknown service charge. “The unknown service charges are included in the other aspects of the bill which is charged. NRAI does not support it”, he submitted.

“So long as it is announced clearly on the menu card that it would be charging service charge and the consumer agrees to consume the food and enjoy the experience. There is a explicit contract which cannot be overridden. Moreover, the said contract cannot also lead to a complaint as the same would be covered under the Consumer Protection Act”, the counsel submitted. He also submitted that the awareness of the customer is of utmost importance, as long as the consumer is being made aware of the 'service charges', there is nothing unfair. 

Taking note of the submissions, the Judge adjourned the matter for further hearing on November 8.

On the last hearing, the court had asked the members of a restaurant body, Federation of Hotels and Restaurant Associations of India (FHRAI) to use the term "staff contribution" for the amount they were claiming from their customers as "service charge".

On September 5, the FHRAI had submitted that its members are ready to change the terminology to “staff contribution”. However, the NRAI had refused it, arguing that service charges had been imposed, considered and upheld in a number of decisions passed in the past, and thus the same required consideration.

It is to be noted that the high court, in July had imposed Rs. 1 lakh costs on each, the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI), for complete "non-compliance of the directions" as per its previous order. “One last opportunity is granted to the Petitioners to properly file these affidavits within four days subject to payment of Rs.1,00,000/- as costs in each of the petitions which shall be paid to the Pay and Accounts Office, Department of Consumer Affairs, New Delhi by way of a Demand Draft. Without the cost being deposited, the affidavits shall not be taken on record”, the court had ordered. 

Notably, on April 12, the court had directed the bodies to file a complete list of all their members who were supporting their pleas as well as the percentage of their members who imposed service charges as a mandatory condition in their bills. It had also asked the two associations to file whether their members would have any objection if the term ‘Service Charge’ is replaced with alternative terminology (such as ‘Staff welfare fund’, ‘Staff welfare contribution’, ‘Staff charges’, ‘Staff welfare charges) to prevent confusion in the consumer’s mind that it is not a government levy.

The judge had also asked the petitioners to state the percentage of members who would be open to informing their consumers that the service charge is not mandatory and they can contribute willingly.

Case Title: National Restaurant Association v. Union of India & Anr.