Service charge ban: Delhi HC imposes Rs 1 lakh each on restaurant associations for non-compliance of directions

The Delhi High Court has given a final chance to the Federation of Hotels and Restaurant Associations of India and the National Restaurant Association of India to file their affidavits, as per the order issued on April 12 regarding levy of service charge by their members.

However, this chance comes with a condition that they must each pay a penalty of Rs. 1 lakh.

Both associations have failed to comply with the previous order, leading to complete non-compliance, and Justice Prathiba M. Singh has granted them a final opportunity to submit the required affidavits within four days.

Justice Singh said that the penalty amount should be paid to the Pay and Accounts Office, Department of Consumer Affairs, New Delhi, via a demand draft.

The court further said that only upon the payment of the penalty will their affidavits be considered and accepted by the court. Failure to deposit the penalty will result in the affidavits not being taken into account.

On April 12, the high court had said that its interim order staying the guidelines of Central Consumer Protection Authority (CCPA), that prohibit the hotels and restaurants from levying service charges "automatically or by default" on bills, shall not be shown on the menu cards or display boards in a manner to mislead the consumers that the service charge has been approved by the court.

The Federation of Hotels and Restaurant Associations of India and National Restaurant Association of India had challenged the CCPA's rules released on July 4 last year, which the high court stayed later that month.

A co-ordinate bench had stayed the guidelines, while specifying that the service charge and obligation of the customer to pay it must be "duly and prominently displayed on the menu or other places".

"It is clarified that the interim order shall not be shown in the display board or menu card in a manner to mislead the consumer that the service charge has been approved by this court," Justice Singh had said.

Additional Solicitor General Chetan Sharma had submitted that various restaurants are "misinterpreting the interim order" by using it to give legitimacy to levy of the service charge.

Both Associations were ordered by Justice Singh to produce an affidavit stating the proportion of their members who are requiring the service charge as a requirement on meal bills.

The court had further stated that the response must state whether the members would object if the term "service charge" were to be replaced with another term, such as "staff welfare fund, staff welfare contribution, or staff charges", in order to prevent consumers from assuming that the fee is being levied by the government.

"The affidavit shall also indicate the percentage of members who are willing to inform the consumers that the service charge is not mandatory and they can contribute voluntarily," the court had said.

"For a long time, most of us thought that the service charge is being taken by the government. That is where the problem is because people think service charge is like a service tax. A consumer doesn’t know the difference between service tax, GST etc. because people think it is being taken by the government. I have come across a lot of people who think like that," the court had said.

The Centre had earlier argued that the recommendations were released in the best interests of consumers and urged the court to take the matter into consideration, including its plea for the vacation of the stay order.

It had apprised the court that certain restaurants were currently relying on the interim order to create the image that they are permitted to impose service charges.

Justice Singh had said that without hearing the parties, the interim order cannot be modified and added that the application for a vacation of stay shall be taken into consideration if the main case cannot be heard on the next date.

Counsel appearing for the petitioners had said the service charge, which has been in existence for the last several years, is a "traditional charge" and is distributed among those who "are not before the customers", and restaurants are seeking it after displaying due notice of the same on their menu cards and in their premises. The petitioners had further claimed that the CCPA's order is arbitrary, untenable and ought to be quashed.