Delhi High Court Imposes Rs 1 Lakh Fine on Restaurant Associations For Non-Compliance With Service Charge Directives

Delhi HC imposed a fine of Rs 1 lakh on the National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI)

The Delhi High Court (HC) has taken a strong stand against the violation of service charge guidelines by restaurants and hotel associations. It has imposed a fine of Rs 1 lakh on the National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI), for failing to comply with the court orders regarding service charge collections. 

The penalty is to be paid to the Department of Consumer Affairs, Government of India. Ministry of Consumer Affairs, Food, and Public Distribution, stated in its press release on Thursday, that the Delhi HC passed the order on July 24 to pay the fine for non-compliance of its directions under the order passed on April 12 this year. 

As per the order, both associations were asked to submit a detailed list of their members in support of the present writ petitions by April 30, 2023. They were also required to file specific affidavits addressing the different aspects related to service charge imposition such as disclosing the percentage of members imposing mandatory service charge on bills, the percentage of members willing to make service charge voluntary and express their opinion on using alternative terms for ‘service charge’ to avoid confusion. 

Both associations failed to file the necessary affidavits, leading to complete non-compliance with the court’s orders. 

The court was acting on the increasing complaints from consumers regarding restaurants and hotels implementing mandatory service charges, often hidden or obscured from the customer, even in the face of poor service quality, reported CNBC TV18. 

Ever since guidelines were issued by the Central Consumer Protection Authority (CCPA), more than 4000 complaints have been registered on the National Consumer Helpline (NCH), underlining the magnitude of the issue being faced by consumers all across the country. These complaints include instances of restaurants demanding service charge on a mandatory basis, portraying these charges as government-approved or levied, restaurant personnel, including bouncers, harassing the consumers if they refuse to pay the service charge, and ‘service charge’ being referred to by other names such as ‘SC’, ‘S.Charge’, ‘S/C.’ or ‘S.C.R.’, 

Although the court has given a final 4-day extension to provide these documents, it has imposed the fine as the cost for these affidavits to communicate the gravity of the situation to both associations. 

The next hearing in the matter is scheduled for September 5.