As a hotelier like yourself with 8 yrs of experience, allow me to say what the company is asking for comes as no surprise to me.
1. Guest is checked in without any documents! Seriously? How do u expect to protect yourself then when u do not have all required documentation? You said that he checked in without documents, u were on duty, and then u contradicted and said if u were the one on duty u would not let him check in. so I assume u were not on duty?!
2. He paid for the first night in cash – ok great
3. He wanted to extended, they extended without payment. (BIG NO NO UNLESS CORPORATE ACCOUNT or at least Credit card block!!)
4. U guys kept on extending, as per manager’s orders. #1. Manager is Liable just like you are, therefore I expect he should get a deduction from his salary. #2. Why did you not have the manager sign extension allowance form?
5. Bill swelled? I’m sure the bill did not swell from just room rate, why was not a note sent out to all deparments/F&B and other outlets making sure that no room charges are allowed and quest must pay cash for whatever he orders?! That is a very normal procedure.
Guest went to jail, and then he paid Bail and left.. well it looks like he does have money to pay. And I must say that the action the hotel is taking is very much normal and done world wide. Only thing you guys can petition for is not to have all the bill deducted from you, the hotel can bear part, and the manager himself can bear part…
At the end what can I say other than I’m sorry for you.. but there is no legality against what they are doing because it IS the mistake of the Front Desk/Reception.

WYSIWYG