National Restaurant Association of India & Ors. v. Union of India & Anr.

1. This hearing has been done through hybrid mode.

2. The Petitioners in the present petitions are Associations of hotel and restaurant owners. The challenge in these writ petitions is to the guidelines dated 4th July, 2022 issued by the Central Consumer Protection Authority (hereinafter ‘CCPA’) and the consequential communication issued on 6th July, 2022 to all the District Collectors for enforcing the guidelines of 4th July, 2022.

3. Notice was issued in the present two petitions on 20th July, 2022. On the said date, the Court stayed the effect of paragraph 7 of the impugned Guidelines dated 4th July, 2022. The said stay order was subject to the condition that the members of the Petitioner associations prominently display on the menu and other places that ‘Service Charge’ is being charged by the establishment. It was also directed that the no ‘Service Charge’ be included on ‘take-away’ items. Thereafter, an appeal was preferred against the order dated 20th July, 2023 by the Respondents challenging the interim stay of the guidelines dated 6th July, 2022. Vide order dated 18th August, 2022, the ld. Division Bench of this Court remanded the matter, with the direction to pass appropriate orders in respect of the application for vacating the stay order issued on 20th July, 2023.

4. Vide order dated 12th April, 2023, this Court while taking up both these petitions for hearing had issued the following directions: i. At the outset, it is noticed that both these petitions have been preferred by associations/federations of hotels and restaurants. In order to have clarity as to the members qua whom the present writ petitions have been preferred, taking into consideration, orders passed in WP(C) 3324/1999 titled ‘Kuber Times Emp. Assn. v. State & Ors.’, both the associations/federations shall file a complete list of all their members who are supporting the present writ petitions. The said list shall be filed by 30th April

2023. The Registry to compute the court fee which would be payable, which shall also be informed to the Petitioners. The necessary court fee shall then be deposited by the Petitioners. ii. Ld. counsels for the associations/federations have submitted that they have lakhs of members. In view of the fact that both these associations/federations have preferred these writ petitions, this Court is of the opinion that the associations/federations ought to consider the following aspects and place their stand before the Court: a. The percentage of members of the Petitioners who impose service charge as a mandatory condition in their bills. b. Whether the said members and the associations/federations would have any objection in the term `Service Charge’ being replaced with alternative terminology so as to prevent confusion in the minds of the consumer that the same is not a Government levy. Some terminologies that could be considered are ‘Staff welfare fund’, ‘Staff welfare contribution’, ‘Staff charges’, ‘Staff welfare charges’, etc. or any other alternative terminology. c. The percentage of members who are willing to make service charge as voluntary and not mandatory, with option being given to the consumers to make their contribution to the extent that they are voluntarily willing subject to a maximum percentage that may be charged.

5. Ld. Counsels for both the Petitioners claim that the affidavits in terms of the order dated 12th April, 2023 have been placed on record by the National Restaurant Association of India (‘NRAI’) and Federation of Hotel and Restaurant Associations of India (‘FHRAI’). The position that emerges after a perusal of the said affidavits is as under:

(i) Insofar as the NRAI is concerned, as per the affidavit filed by

Mr. Prakul Kumar, Secretary General of NRAI, there are a total of about 1100 members, whose list has been placed on record. As per the said affidavit, 80% of the NRAI members impose service charge on the customers as a mandatory condition. In the said affidavit, it has been stated that the members of NRAI are not willing to change the terminology from ‘Service Charge’ to any of the alternatives proposed by the Court as put to them in the order dated 12th April, 2023. The minutes of the meeting of the Managing Committee dated 18th April, 2023 of NRAI reveals that the conclusion that the said association has reached that the terminology of service charge cannot be changed. It is further claimed in the said affidavit by the NRAI that there is also no scope of confusion between the terms ‘Service Tax’ and ‘Service Charge’ as the Service Tax is no longer being imposed by restaurants and hotels.

(ii) Insofar as FHRAI is concerned, the list of members that has been placed on record is totalling to 3327 members. As per the affidavit filed by Mr. Jaison Chacko – Secretary General of FHRAI, amongst the members of FHRAI, there is no uniformity or consistency being followed in respect of ‘Service Charge’ - some members charge ‘Service Charge’ and some do not. However, it is specifically stated that the members who are charging Service Charge, charge the same compulsorily from their customers and do not give an option of paying the same or not.

6. As per Mr. Sethi, ld. Senior Counsel appearing for FHRAI, no ‘Service Charge’ is being charged on delivery services.

7. The Court has heard ld. Counsels for both the associations as also the Union of India. The position that has now been revealed to the Court pursuant to the order dated 12th April, 2023, would show that the membership of both these associations is not as claimed in the writ petitions to be in lakhs. But the position that they now put forth is that these two associations being the apex bodies represent the interests of the hotels and restaurants all across India – which are lakhs in number, though they do not represent them.

8. In the opinion of this Court, there are four major issues which need to be considered –

(i) Whether the CCPA can issue the impugned directions to hotels and restaurants;

(ii) Whether hotels and restaurants can `levy’ service charge on customers;

(iii) Whether the service charge can be made compulsorily payable by customers;