The Delhi High Court on September 5 permitted restaurants and hotels affiliated to Federation of Hotel and Restaurant Associations of India (FHRAI) a 'staff contribution' in the place of service charge.
Justice Prathiba Singh, who passed the order, however made it clear that this was only an interim order and not a final one. The judge further more capped the levy of staff contribution to 10 percent of the bill and directed the restaurants to mention the same in their menu cards. The final hearing of the case is expected to commence on October 3.
The order is restricted only to members of FHRAI and does not apply to members of associations such as National Restaurant Association of India (NRAI). The order was passed in writ petitions by FHRAI and NRAI challenging the guidelines of Central Consumer Protection Authority (CCPA), which barred the levy of service charge by restaurants.
Senior advocate Sandeep Sethi, who appeared for FHRAI, argued that service charge is a universally accepted mode and the money received under this head is split between all the employees of a restaurant. He informed the court that service charge is not levied on online deliveries and is thus not unfair. According to Sethi, if the restaurants are not permitted to levy such a charge, the cost of food will increase as a result of which customers ordering online would also have to incur service charge. He furthermore said that there are over 3,300 restaurants affiliated with FHRAI.
On being asked by the court if FHRAI is aggregable to levy the same as 'staff contribution', Sethi responded agreeing to the same. However, NRAI, who has more than 1,000 affiliate restaurants responded stating that they wish to levy it only as 'service charge' and not under any other name.
In July 2023, the Delhi HC fined FHRAI and NRAI Rs 1 lakh each for not complying with its orders.
As per the order dated April 12, the court directed both the NRAI and FHRAI to:
Provide a complete list of members supporting the writ petitions by April 30, 2023.
Submit specific affidavits regarding:
(a) The percentage of members imposing mandatory service charges.
(b) Potential alternative terminologies for service charges to prevent confusion.
(c) The percentage of members willing to make service charges voluntary, with a maximum charge limit.
The restaurant associations were mandated to comply with the aforementioned directions. However, both associations failed to file the required affidavits as per the specified order.
The HC observed that it strongly appeared that the restaurant associations deliberately exhibited complete non-compliance with the orders dated April 12. Furthermore, they filed the affidavits without properly serving the respondents, seemingly attempting to hinder the court proceedings.
The high court granted one last opportunity to file the affidavits within four days, subject to payment of Rs 1 lakh as costs for each petition. Non-compliance will lead to the rejection of the affidavits.
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