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Court was dealing with a plea by NRAI and FHRAI challenging July 4 guidelinez by the Central Consumer Protection Authority (CCPA) which barred hotels and restaurants from levying default service charges on food bills
The Delhi High Court on Tuesday asked the members of a restaurant body, Federation of Hotels and Restaurant Associations of India (FHRAI) to use the term "staff contribution" for the amount they were claiming from their customers as "service charge".
The bench of Justice Prathiba M Singh was hearing the petitions against guidelines prohibiting hotels and restaurants from automatically levying service charges on food bills.
The judge directed the Federation of Hotels and Restaurant Associations of India (FHRAI) to clearly specify the imposition in their menu cards and not charge more than 10 percent of the bill. "They will make it clear that it is not a levy by the government," the judge observed.
The FHRAI submitted that its members are ready to change the terminology to “staff contribution”. However, the NRAI refused it, arguing that service charges had been imposed, considered and upheld in a number of decisions passed in the past, and thus the same required consideration.
Justice Singh ordered, “The matter is now required to be heard further. In the meantime, it is directed that the members of FHRAI shall use the terminology ‘staff contribution’ for the amount of service charge that they are currently charging. The same shall not be more than 10% of the total bill amount, excluding GST. The menu card shall specify in bold that after the payment of staff contribution, no further tip is to be paid to the establishment. The above is merely an interim order which is subject to further orders in the writ petition”.
The pleas are next listed for further hearing on October 3, 2023.
During the hearing, the court took note of an affidavit filed by NRAI which said that there are a total of about 1,100 members whose list they had placed on the court’s record.
As per the affidavit, 80% of NRAI members impose service charges on their customers as a mandatory condition and members are not willing to replace the terminology.
“The minutes of the managing committee (of NRAI) on April 18 reveals that terminology can’t be changed and there is also no scope of confusion between service tax and service charge as service tax is no longer being imposed on restaurants,” the court noted.
With respect to the FHRAI’s affidavit, the court noted that there was “no uniformity or consistency in their membership” which was followed, some members charged service charge, while some did not.
“The ones who are charging service charge, (do) it compulsorily from their customers and do not give an option,” the court noted regarding FHRAI’s affidavit.
The court observed that the current position which had been revealed was that these two associations are bodies that represent the interests of the lakhs of hotels and restaurants in the country though the same may not be their members. The court framed three following issues that arose in the matter:
Court also dismissed the NRAI’s application for waiver of the cost of Rs 1 lakh imposed on it for not complying with court's April 12 order and asked the body to deposit the amount within two weeks.
It is to be noted that the high court, in July had imposed Rs. 1 lakh costs on each, the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI), for complete "non-compliance of the directions" as per its previous order. “One last opportunity is granted to the Petitioners to properly file these affidavits within four days subject to payment of Rs.1,00,000/- as costs in each of the petitions which shall be paid to the Pay and Accounts Office, Department of Consumer Affairs, New Delhi by way of a Demand Draft. Without the cost being deposited, the affidavits shall not be taken on record”, the court had ordered.
Notably, on April 12, the court had directed the bodies to file a complete list of all their members who were supporting their pleas as well as the percentage of their members who imposed service charges as a mandatory condition in their bills. It had also asked the two associations to file whether their members would have any objection if the term ‘Service Charge’ is replaced with alternative terminology (such as ‘Staff welfare fund’, ‘Staff welfare contribution’, ‘Staff charges’, ‘Staff welfare charges) to prevent confusion in the consumer’s mind that it is not a government levy.
The judge had also asked the petitioners to state the percentage of members who would be open to informing their consumers that the service charge is not mandatory and they can contribute willingly.
Case Title: National Restaurant Association v. Union of India & Anr.
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