Delhi HC fines restaurant bodies over replies on service charge

Delhi high court fines two restaurant associations ?1 lakh each for failing to comply with order related to service charge guidelines.

The Delhi high court has fined two restaurant associations ₹1 lakh each for failing to comply with an order issued in relation to their challenge of guidelines prohibiting hotels and restaurants from levying service charges on food bills.

Delhi HC fines restaurant bodies over replies on service charge

Justice Prathiba M Singh ordered the National Restaurant Association of India (NRAI) and Federation of Hotels and Restaurant Associations (FHRA) of India to pay the fine to the department of consumer affairs for failing to comply with the judge’s order of April 12, in which she had ordered the two bodies to disclose the complete list of their members in support of the petitions against the Central Consumer Protection Authority (CCPA)’s elimination of the service charge.

The court also asked the restaurant associations to specify the percentage of their members who imposed mandatory service charges, and those that left it to customers to pay a voluntary service charge. The petitioners were also asked if they objected to the term “service charge” being replaced with alternative terms such as “staff welfare fund” to avoid consumer confusion that it was not a government levy.

Noting that the petitioners were “in complete non-compliance” with the directions, the court in its July 24 order said the affidavits were filed without properly serving the Centre “so that the hearing does not proceed”.

“It is clear that the petitioners were required to make various compliances. Neither of the petitioners has filed the affidavits regarding the said order…As a result, the petitioners are given one last chance to file these affidavits properly within four days, subject to payment of ₹1 lakh as costs in each of the petitions...,” the court ordered.

The matter will be heard next on September 5.

For years, the government and consumer bodies have argued that a service charge is illegal even as the restaurant lobby has claimed that it is standard practice in the hospitality industry. On July 4, 2022, the CCPA formalised its stand when the authority issued a notification that barred restaurants from automatically adding service charges to food bills.

On July 20, 2022, the high court put the CCPA order on hold following petitions by the NRAI and the Federation of Hotel and Restaurant Associations of India FHRAI. The CCPA challenged this decision, contending that the single-judge bench of justice Yashwant Varma passed the order in “haste” and without giving them enough opportunity to present their stand.