Zostel claims win in 3-year legal battle against OYO

Zostel on Sunday said it has won three-year legal battle against Oravel Stays Pvt Ltd (OYO).

“OYO acted in breach of its binding agreement after its acquisition of rival Zostel Hospitality, ruled the Arbitral Tribunal, directing OYO to sign the documents and issue the shareholding as committed in the Term Sheet,” Zostel said in a statement.

The Term Sheet executed between the two parties on November 26, 2015, promised ZO Rooms’ shareholders seven per cent of OYO.

The order was pronounced by the Arbitral Tribunal, Former Chief Justice of India, Justice AM Ahmadi on March 6, 2021.

Paavan Nanda, Ex Co-founder, Zostel, who led the process, said, “We welcome the judgement by the tribunal. Beyond the monetary compensation, it was a fight for our rights and reputation. We are extremely relieved with the judgement that the arbitral tribunal has pronounced after diligently evaluating the merits and evidences produced by us over the last 3 years.”

“The tribunal held that the Term Sheet between Zostel and OYO was a binding agreement. The order stated that OYO breached the Term Sheet by not executing Definitive Documents due to OYO’s internal issue. The Tribunal recognised that the transaction was consummated as ZO Rooms transferred the entire business in 2016. As a result of the breach, which was not caused by any default on part of the ZO and its shareholders, ZO Rooms’ Shareholders are entitled to issuance of decree of specific performance directing the parties to execute definitive agreement,” the statement said.

What went wrong

Both companies have been fighting against each other over a 2015 deal under which ZO claimed OYO had acquired the company while OYO maintained the deal fell through after due diligence and that it has plenty of reasons for not acquiring the company.

ZO Rooms and OYO had entered into talks for a merger in 2015, executing an agreement on 26th November 2015. ZO Rooms claims that it completed its obligation under the agreement and transferred the business but OYO failed to transfer 7 per cent to the ZO Room’s shareholder, which eventually led to the recently concluded Arbitration. Following the Supreme Court Directive in October 2018, Justice AM Ahmadi was appointed as the sole Arbitrator.

OYO had also dragged smaller rival ZO Rooms to the court over allegations pertaining to harassment and blackmailing to for fulfil unreasonable demands.

“As per a very recent regulatory filing with the Ministry of Corporate Affairs, OYO has raised $7.31 million at a share price of $58,490 as a part of its Series F1 round, valuing OYO at a whopping $9 billion. If the order from the Arbitrator is to be given effect, allotment of 7 per cent to ZO Rooms’ shareholders will make this outcome the biggest exit in the Indian start-up ecosystem, surpassing the Snapdeal-Freecharge Deal of $400 million back in 2015,” Zostel said.

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