An Arbitral Tribunal recently ruled that Oravels Stays Pvt. Ltd (parent company of OYO) acted in breach of a binding agreement after its acquisition of rival Zostel Hospitality (which owns ZO Rooms), whereby it had agreed to transfer 7 percent of OYO to ZO Rooms’ shareholders.
Dismissing contrary submissions made by OYO on this count, the tribunal ruled that a November 26, 2015 Term Sheet between OYO and Zostel was binding. It added that since Definitive Agreements are yet to be executed, Zostel may initiate appropriate proceedings for its execution.
“… this Tribunal holds that Claimant (Zostel) is entitled to Specific Performance of the Respondent’s (OYO’s) obligations under Term Sheet dated 26.11.2015. However, as Definitive Agreements have yet to be executed, the Tribunal holds that the Claimant is entitled to take appropriate proceedings for Specific Performance and execution of the Definitive Agreements as envisaged, for itself and its shareholders under the Term Sheet”, the order said.
The order was pronounced by the Arbitral Tribunal comprising former Chief Justice of India, Justice AM Ahmadi on March 6, 2021.
The order noted that OYO breached its obligations under the Term Sheet and had not executed definitive documents due to internal issues in OYO.
The tribunal opined that ZO Rooms had taken all measures in its control to fulfill its obligations under the Term Sheet, including the transfer of its entire business in 2016. As a result of the breach, which was not caused by any default on part of ZO and its shareholders, ZO Rooms’ Shareholders was held to be entitled to the issuance of a decree of specific performance.
“The Claimant (Zostel) cannot be held responsible for the acts and omissions of the Respondent (OYO) and/or its shareholders by virtue of which some of the obligations under the Term Sheet could not be fulfilled by the Claimant. Hence, the Claimant is entitled to Specific Performance of the Respondent’s obligations,” the order stated.
ZO Rooms had filed an application before the Delhi High Court on January 21, 2020 against OYO’s decision to restructure its business and transfer mirrored shareholding into new entities without informing the Tribunal. The prayer was to either restrain the transfer or to include all entities in the scope of arbitration to secure the 7 percent consideration.
ZO Rooms and OYO had entered into talks for a merger in 2015, executing an agreement on November 26, 2015. ZO Rooms claimed that while it completed its obligation under the agreement and transferred its business, OYO failed to transfer 7 percent stake to the ZO Room’s shareholder, which eventually led to the recently concluded arbitration proceedings. Following a Supreme Court directive in October 2018, Justice AM Ahmadi was appointed as the sole Arbitrator.
OYO was represented by Senior Advocates Dr. Abhishek Manu Singhvi and Salman Khurshid, among others. ZO Rooms was represented by TMT Law Practice, which briefed Abhishek Malhotra, Managing Partner.
As per a 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 of the Arbitrator is to be given effect, the allotment of 7% to ZO Rooms’ shareholders will make this outcome the biggest exit in the Indian startup ecosystem, surpassing the Snapdeal-Freecharge Deal of $400 Million back in 2015, Zostel said.