Advisory against service charge on restaurant bills

The government plans to issue an advisory to states asking them to crack down against unfair imposition of service charge on food and drink bills, Food and Consumer Affairs Minister Ram Vilas Paswan said on Friday.

“Service charge does not exist. It is being wrongly charged. We have prepared an advisory on this issue. We have sent it to the PMO for approval,” Paswan told reporters in New Delhi.

A senior ministry official said the advisory, once approved by the Prime Minister’s Office (PMO), will be issued to all states and union territories. The advisory will also be useful for Voluntary Consumer Organisations (VCOS) fighting for consumer right, he said.

“No customer should be forced to pay service charge. If customers want they can pay a tip to waiters or give their consent to levy the charge in the bill,” the official said while explaining the nature of proposed advisory. The levying of service charge without seeking customer consent will be considered as unfair trade practice under the Consumer Protection Act, he added.

The minister said consumers should be informed about service charge in the menu itself. Earlier too on several occasions, Paswan spoke against unfair imposition of service charge on food bills and had even sought explanation from hotels and restaurants’ bodies.

In January, the Department of Consumer Affairs stated that service charge on food bills is not compulsory and a customer can choose to have it waived if not satisfied with experience. States were told to ensure that hotels/ restaurants disseminate this information through displays on their premises.

“A number of complaints from consumers have been received that hotels and restaurants are following the practice of charging ‘service charge’ in the range of 5-20 per cent, in lieu of tips, which a consumer is forced to pay irrespective of the kind of service provided to him,” it had said.

Highlighting provisions under the Consumer Protection Act, 1986, the ministry had said a consumer can make a complaint to the appropriate consumer forum against unfair trade practices. “Our Department’s view is that imposing service charge is an unfair trade practice and consumers need not pay,” Paswan had said in January.

Piramal Finance Pvt. Ltd, which houses the entire financial services business of the Piramal Group, has lent ₹450 crore to a joint venture between Bengaluru-based developer Embassy Group and Hyderabad’s Phoenix Group, which is developing three special economic zones (SEZS) in Hyderabad, company executives said.

The money has been given in the form of construction finance to procure approvals and develop the SEZS, which will be built across 10 million sq. ft.

In the joint venture, Phoenix Embassy Tech Zone Pvt. Ltd, Embassy is an equity partner while Phoenix provides the land. Both are involved in project construction.

With this deal, Piramal Finance has committed more than ₹2,000 crore in the last two years or so in Hyderabad, of which ₹1,000 crore has been committed to the Phoenix Group.

“Hyderabad has advantages of having one of the best infrastructure among cities and a proactive government,” said Khushru Jijina, managing director at Piramal Finance.

“We started investing in Hyderabad in 2014, at a time when most other banks or NBFCS (non-banking financial companies) perceived Hyderabad negatively for investments considering its history of politi cal uncertainty and weak real estate sector for a prolonged period,” said Jijina.

“Given faster approval proc ess, infrastructure and growth potential, especially in the com mercial office space, we are posi tive and intend to commit an additional ₹2,000-3,000 crore in Hyderabad in the coming year,” he added.

Embassy chairman Jitu Vir wani confirmed the transaction

Jijina said the Phoenix Group is a preferred partner in the city and a market leader in the com mercial real estate space, having delivered more than 6 million sq ft of office space.

The Phoenix Group has a large portfolio of commercia office projects, with nearly 23 million sq. ft of space under con struction.

The firm has attracted sub stantial private equity and NBFC capital this year, having raised ₹309 crore from Altico Capital India, the NBFC arm of Asia-focused investor Clearwa ter Capital Partners, as well as ₹90 crore from Motilal Oswa Real Estate.

“We have got ₹450 crore from Piramal for the three SEZS and depending on how the projects perform, additional funds may be infused into the projects,” said Gopikrishna Patibanda, manag ing director of Phoenix Group.