2022 (7) TMI 970 - HC - Indian Laws

Court deems service charge beyond menu prices unfair trade practice under Consumer Protection Act

NATIONAL RESTAURANT ASSOCIATION OF INDIA & ORS. and FEDERATION OF HOTEL AND RESTAURANT ASSOCIATIONS OF INDIA & ORS. Versus UNION OF INDIA & ANR.

The High Court of Delhi found merit in the challenge against the Guidelines issued by the Central Consumer Protection Authority (CCPA) on the levy of ... Validity of Guidelines which have been issued by the Central Consumer Protection Authority [CCPA] - levy of a service charge in addition to the total price of the food items mentioned in the menu - Section 2(47) of the Consumer Protection Act, 2019 - HELD THAT:- The petitioners contend that various settlements came to be entered into between the workmen and individual establishments, awards came to be rendered by industrial adjudicators and those would clearly be upset if the impugned Guidelines were to be implemented - On a more fundamental plane, the Court notes that there would be a serious doubt whether the issue of pricing and the levy of a service charge would fall within the ambit of Section 2(47) of the Consumer Protection Act, 2019 itself. An identical issue of whether the levy of a service charge would amount to a restricted or unfair trade practice came up for consideration before the erstwhile Monopolies and Restrictive Trade Practices Commission in S. S. Ahuja vs. Pizza Express [2001 (12) TMI 903 - MONOPOLIES AND RESTRICTIVE TRADE PRACTICES COMMISSION NEW DELHI] where it is held that There is thus no unfair practice or deceptive method adopted by the respondent as contended by the complainant. In fact the extra levy at 9% would act as a disincentive to the promotion of sales, which is a pre-requisite condition for holding the trade practice to be unfair. The matter requires consideration. Consequently, and till the next date of listing the directions as contained in paragraph 7 of the impugned Guidelines of 04 July 2022 shall remain stayed subject to the following conditions: - (1) The members of the petitioner Association shall ensure that the proposed levy of a service charge in addition to the price and taxes payable and the obligation of customers to pay the same is duly and prominently displayed on the menu or other places where it may deemed to be expedient. (2) The members of the petitioner Association further undertake not to levy or include service charge on any “take away” items. List again on 25.11.2022. Issues:Challenge to Guidelines issued by Central Consumer Protection Authority regarding the levy of service charge by hotels and restaurants.Analysis:The High Court of Delhi, in a recent judgment, found merit in the challenge raised against the Guidelines issued by the Central Consumer Protection Authority (CCPA) regarding the levy of service charge by hotels and restaurants. The CCPA had issued guidelines to prevent unfair trade practices related to service charges. The Court noted that the CCPA's guidelines aimed to ensure that service charges are not added automatically to bills, collected under a different name, or forced upon consumers. The Court highlighted the issue of consent in paying prices displayed in the menu along with applicable taxes and deemed charging anything beyond that as an unfair trade practice under the Consumer Protection Act, 2019.The Court delved into the historical context of service charge in the hotel industry, referencing past committees and recommendations regarding the collection and distribution of service charges. The petitioners argued that implementing the impugned Guidelines would disrupt settlements and awards previously made between workmen and establishments. The Court also raised a fundamental question regarding whether pricing and service charge levy fall within the scope of the Consumer Protection Act, 2019.In considering previous decisions, the Court referred to a case where it was established that consumer courts do not interfere in pricing matters as it is a contractual issue between parties. Another case highlighted that the levy of service charges does not necessarily constitute a restrictive trade practice unless it distorts competition or obstructs market flows. The Court stayed the implementation of the CCPA guidelines pending further consideration, with conditions imposed on the petitioner Association to prominently display service charge information and refrain from levying charges on take-away items.Overall, the judgment reflects a nuanced analysis of the legal and practical aspects surrounding the levy of service charges by hotels and restaurants, balancing consumer protection concerns with business practices in the hospitality industry.