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Oyo stays Adamant as Zostel claims Victory in a Legal Row

Zostel Hospitality PVT Ltd, which owns hostel aggregator platform Zostel and budget room aggregator Zoom Rooms, claimed on Sunday that it has tasted victory in a three year old legal tussle against Oravel Stays Pvt Ltd – parent company of Oyo Rooms.

This supposed victory implies that Zostel can now initiate proceedings to acquire 7% stake in Oyo rooms. This is as per the said term sheet that was signed between Oyo and Zostel in 2015, with the latter subsequently claiming that Oyo has breached the agreement by not adhering to terms and conditions.

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The judgment proclaiming victory for Zostel was pronounced by the Arbitral Tribunal and Former Chief Justice of India Justice AM Ahmadi on 6th March, 2021.

According to the press release issued by Zostel, Honorable AM Ahmadi said 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 judge further said 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.

Commenting on the judgment, Mr. Paavan Nanda Ex Co-founder, Zostel, said “We welcome the judgment by the Hon’ble Tribunal. Beyond the monetary compensation, it was a fight for our rights and reputation. We are extremely relieved with the judgment that the arbitral tribunal has pronounced after diligently evaluating the merits and evidences produced by us over the last 3 years.

Oyo rooms is one of the most valued startups in India’s startup ecosystem and a 7% stake in a high-profile startup will be considered tantamount to a resounding victory for Zostel.

Oyo stays Adamant despite Zostel claiming Victory

Despite Zostel claiming victory in a legal battle, Oyo continues to remain steadfast on its stance. On its official blog platform, the Softbank backed company has made following claims on the judgment:

  • No relief to Zo in terms of getting any OYO share ownership. In the most significant development, the Tribunal has disallowed it while granting them the right to seek specific performance of TS.

 

  • No definitive agreements in place to consummate the transaction and the tribunal has categorically acknowledged it; and that the definitive agreements, important documentation for any M&A transaction, were neither finalized nor agreed.

 

  • The order notes that the non-binding term sheet is to be held as binding, however, the term sheet itself has several key elements like assets, value etc. including commercials that were not agreed within the term sheets itself.

 

  • Only legal costs awarded as damages granted to Zo, award of specific performance of non-binding term sheet (which in itself has no agreed financials) is subjected to initiation of further proceedings and likely to get challenged.

Oyo has further stated that the concerned judgement will be duly challenged but did not provide any definitive timeline for the same.

 

 

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