In a significant development, the Delhi High Court has set aside the 2021 arbitral award that had declared Zostel Hospitality entitled to a 7% equity stake in OYO (Oravel Stays). The award, which stemmed from a long-standing dispute over a failed acquisition deal, had ruled in favour of Zostel, citing OYO’s obligation under a 2015 term sheet.
The judgment, delivered by Justice Sachin Datta, came in response to OYO’s petition under Section 34 of the Arbitration and Conciliation Act, 1996, which challenged the arbitral tribunal’s findings. Justice Datta noted that the final order would be uploaded after minor typographical corrections.
The origins of the dispute trace back to a 2015 transaction where OYO proposed to acquire Zostel’s hotel business. As per the term sheet, Zostel’s shareholders were to receive a 7% stake in OYO. Although labelled as non-binding (with exceptions for confidentiality, exclusivity, and dispute resolution), the term sheet outlined steps for execution, including the signing of definitive agreements and transfer of assets.
Zostel claimed to have fulfilled its part of the bargain, including the transfer of business and employees, but OYO allegedly backed out due to objections from a minority investor, Venture Nursery. This led Zostel to initiate arbitration in 2018.
On March 6, 2021, the arbitral tribunal, headed by a former Chief Justice of India, acknowledged that Zostel was entitled to specific performance of the term sheet but stopped short of ordering share allotment due to the absence of signed definitive agreements. The tribunal permitted Zostel to pursue legal remedies for enforcing the agreement.
Subsequently, Zostel filed a plea under Section 9 to restrain OYO from altering its shareholding amid plans for an IPO. However, on February 14, 2022, Justice C Hari Shankar dismissed the plea, holding that the award did not confer an enforceable right to shares and thus required no protective relief.
Senior Advocate Mukul Rohatgi, along with a team from DMD Advocates, represented OYO. Zostel was represented by Senior Advocate Abhishek Malhotra and Advocate Sonal Chhablani.
