OYO vs ZO Rooms: Zostel says it won 3-year legal battle over alleged agreement breach; OYO refutes

by Jeremy

Suppose the order from the Arbitrator is to be given effect. In that case, allotment of 7 percent to ZO Rooms’ shareholders will make this outcome the most significant exit in the Indian startup ecosystem,” Zostel said. (Image: company website)

Backpacker hostel startup Zostel on Sunday said it had won the three-year legal battle against Oravel Stays, which owns and operates hotel chain OYO, with regards to the alleged breach of a binding agreement by latter after the acquisition of Zostel that ran budget hotel chain and OYO’s smaller rival ZO Rooms. According to Zostel, ZO Rooms and OYO had entered into talks for a merger in 2015, executing an agreement on November 26, 2015. While ZO Rooms completed its obligation under the contract and transferred the business, OYO failed to share 7 percent to the ZO Room’s shareholders, which eventually led to the recently concluded Arbitration. The company added in an official statement. However, OYO maintained that there is no relief to ZO Rooms in 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 term sheet,” OYO said in its official statement. The Ritesh Agarwal-led company also claimed that no definitive agreements are in place to consummate the transaction. The Tribunal has categorically acknowledged it; and that the final contracts, necessary documentation for any M&A transaction, were neither finalized nor agreed.

Further, the Arbitral Tribunal, Zostel said, held that the term sheet between Zostel and OYO was a binding agreement. OYO breached the term sheet by not executing definitive documents due to OYO’s internal issue. The Tribunal also recognized 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 the part of the ZO and its shareholders, ZO Rooms’ Shareholders are entitled to the issuance of the decree of specific performance directing the parties to execute the definitive agreement” the company said. The order was pronounced by the Arbitral Tribunal, Former Chief Justice of India, Justice AM Ahmadi, on March 6, 2021.

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