Delhi HC imposes ₹1 lakh cost on restaurant associations in service charge case

The Delhi High Court has directed the National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI) to pay ₹1 lakh each as costs for non-compliance with the directions as per its April 12 order.

The court said the costs will be paid to the Department of Consumer Affairs, Government of India.

On April 12, 2023, the high court directed both associations to file an affidavit on the percentage of members who impose service charge as a mandatory condition in their bills and those who are willing to make service charge as voluntary and not mandatory.

The two restaurant lobby groups were also told to place their stand on whether they have 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 such as ‘staff welfare fund’, ‘staff welfare contribution’, ‘staff charges’, ‘staff welfare charges’, etc.

The restaurant associations were required to do necessary compliance as per the above-mentioned directions. However, neither of the associations filed the affidavits in terms of the said order.

The Delhi High Court noted the clear impression that it gets is the restaurant associations are in complete non-compliance of the orders dated April 12, 2023, and had filed the affidavits without serving the respondents properly so as to ensure the hearing does not proceed before the court.

The court granted one last opportunity to properly file these affidavits within four days subject to payment of ₹1 lakh as costs in each of the petitions, which will be paid to the Pay and Accounts Office, Department of Consumer Affairs, New Delhi.

Non-compliance with this direction will result in the affidavits not being taken on record. The matter is now scheduled for hearing on September 5, 2023.

It may be mentioned that a number of consumers have complained against forceful collection of service charge on the National Consumer Helpline (NCH). Since the guidelines issued by the CCPA in July, 2022, more than 4,000 complaints have been registered highlighting:

Last year, the Central Consumer Protection Authority (CCPA) had said that hotels or restaurants will not add service charge automatically or by default in the food bill. The guidelines were issued to prevent unfair trade practices and violation of consumer rights with regard to levying of service charge by hotels and restaurants.

"No collection of service charge shall be done by any other name. No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion," the guidelines said.

The Delhi High Court had stayed the guidelines that prohibited hotels and restaurants from adding service charge on food bills after NRAI challenged the same.