Delhi High Court Cancels Tribunal Order Giving Zostel Stake in OYO: What It Means for OYO’s IPO

The legal battle between Oravel Stays (parent company of OYO) and Zostel Hospitality (owner of ZO Rooms) traces back to a proposed acquisition in 2015. According to the agreed terms, ZO Rooms’ shareholders were to receive a 7% stake in OYO as part of the deal. However, the execution of definitive agreements never materialised, and the transaction remained incomplete. This set the stage for prolonged arbitration and subsequent litigation.

The Arbitral Award of March 2021

On 6 March 2021, an arbitral tribunal concluded that OYO had breached a binding agreement stemming from the term sheet signed during the acquisition process. The tribunal recognised Zostel's entitlement to specific performance of OYO's obligations but stopped short of directing an actual share allotment. Instead, it permitted Zostel to pursue further legal proceedings to enforce execution of the definitive agreements.

Legal Challenge Under Section 34 of Arbitration Act

In response, OYO filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, which allows courts to set aside arbitral awards under certain grounds such as procedural irregularity, lack of jurisdiction, or conflict with public policy. OYO argued that the award was flawed and unenforceable.

A single-judge Bench of Justice Sachin Datta at the Delhi High Court heard the matter and ruled in favour of OYO. The court found merit in OYO’s contention and set aside the arbitral award in its entirety.

IPO Dispute and Zostel’s Section 9 Petition

Amidst this dispute, OYO had filed a draft red herring prospectus (DRHP) for its proposed IPO. Zostel raised objections, asserting that the shareholding issue remained unresolved. In an attempt to prevent dilution of its claimed stake, Zostel approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction against any alteration to OYO’s shareholding.

OYO’s Stand on the Dispute

OYO consistently maintained that the deal was terminated by mutual consent and that no binding obligation existed to issue shares to ZO Rooms’ shareholders. It refuted Zostel’s claims, arguing that the term sheet was merely a preliminary agreement and not enforceable in the absence of executed definitive documents.

Read More: OYO Postpones India IPO Plans Third Time Amid SoftBank Concerns. 

Conclusion 

The Delhi High Court’s decision to set aside the arbitral award removes any immediate legal ground for Zostel to claim a stake in OYO. However, the broader commercial and legal implications may continue to unfold, especially with regard to any potential public listing or further legal recourse Zostel might pursue.

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