The Delhi High Court (HC) has dismissed Zostel Hospitality Pvt Ltd's interim plea claiming 7% holding in Oravel Stays Ltd, parent of Oyo. This comes as a big relief to the SoftBank-backed hospitality firm that is awaiting regulatory approval for its Rs 8,340 crore initial public offering (IPO) filed last year.
The Delhi HC’s single-judge bench comprised of Justice C Hari Shankar, who passed the ruling on Monday.
“While we await the full order, we believe that Zostel’s demand for issuance of 7% shares of Oyo under the arbitration award has also been rejected," a spokesperson for Oyo said.
"This verdict vindicates our stand that Zostel has been trying to mislead the public at large. We hope this will act as a strong deterrent for Zostel’s endless forum shopping efforts and be a conclusive closure of this matter,” the spokesperson added.
The legal tussle between the two companies has its origins in 2015 when Oyo had agreed to acquire Tiger Global backed Zostel, which operates ZO Rooms and Zostel Hostels. But the deal fell through.
The fight between them came to prominence again after Oyo filed draft papers for IPO with Sebi (Securities Exchange Board of India) in October 2021. Soon, Zostel wrote to Sebi urging it to reject Oyo’s prospectus and suspend its IPO. Zostel had said that Oyo’s capital structure was not final. Zostel had also alleged that Oyo’s draft papers were replete with material omissions and blatant misstatements, intended to mislead the public into investing into Oravel’s shares without appreciation of the risks involved.
According to Zostel Hospitality, ZO Rooms and Oyo had entered into talks for a merger in 2015, executing an agreement on 26 November that year. ZO Rooms completed its obligation under the agreement and transferred the business, but Oyo failed to transfer 7% to the ZO Room’s shareholder, Zostel alleged earlier.
In March 2021, an arbitral tribunal ruled in favor of Zostel, calling the term sheet which promised ZO Rooms’ shareholders 7% of hospitality unicorn Oyo as a binding document. On 10 April last year, Oyo challenged the arbitral tribunal's decision and sought a stay on the implementation of the award with the Delhi HC.
In October last year, in response to Zostel Hospitality’s letter to Sebi, Oyo had said that the two parties had ‘mutually agreed’ to ‘terminate’ the acquisition deal in 2016. Oyo said that it had entered into a ‘non-binding term sheet’ dated November 26, 2015, which was ‘expressly agreed’ to be ‘non-binding’. Oyo also added that the ‘non-binding term sheet’ laid down clearly that parties will only be bound to consummate the transaction if there was a consensus on all commercial and legal aspects of the transaction.
Zostel Hospitality had further written to Sebi in November last year saying Oyo again ‘misrepresented the legal facts’ and ‘misled the authorities’ about the acquisition deal between both parties.
Oyo’s IPO comprises of a fresh issue of shares of as much as Rs 7,000 crore and an offer-for-sale of as much as Rs 1,430 crore. Through the IPO, SoftBank is seeking a partial exit.
VCCircle had reported in late January that the hospitality firm had got listing nod from BSE and the National Stock Exchange. Back then, Oyo was expecting Sebi’s approval by 10 February.
