In a significant ruling, the Delhi High Court has set aside a 2021 arbitral award that had upheld Zostel Hospitality Pvt Ltd’s claim to a 7% stake in OYO (Oravel Stays Pvt Ltd), declaring the award to be in violation of Indian public policy. Justice Sachin Datta, delivering the judgment on May 13, 2025, concluded that the award was based on a non-binding Term Sheet from 2015, which could not form the basis of enforceable contractual rights.
The dispute stemmed from a Term Sheet executed between OYO, Zostel, and its shareholders—including Tiger Global and Orios Venture Partners—outlining OYO’s proposed acquisition of Zostel’s assets. In exchange, Zostel’s shareholders were to receive a 7% equity stake in OYO. However, the Term Sheet explicitly stated that it was non-binding, except for a few clauses relating to confidentiality, exclusivity, and governing law. The agreement also made clear that the deal would only be completed through definitive agreements, which were never executed.
Zostel initiated arbitration in 2018, claiming it had already fulfilled its obligations. The arbitrator, in a 2021 award, acknowledged the non-binding nature of the Term Sheet but found the parties’ conduct implied a binding agreement. The tribunal held Zostel was entitled to specific performance but stopped short of directing the allotment of shares, leaving that for further proceedings.
OYO challenged the award, arguing that it lacked legal basis. The High Court agreed, stating that the award failed to address whether a binding contract even existed. It further criticized the tribunal for allowing Zostel to seek specific performance of a deal whose core terms—like the Shareholders’ Agreement and Business Transfer Agreement—remained unsettled.
Justice Datta underscored that Indian law does not permit specific performance of incomplete agreements. Permitting enforcement of such tentative arrangements, he said, contravenes the Arbitration and Conciliation Act, 1996, particularly Section 34(2)(b)(ii), which allows courts to set aside awards conflicting with public policy.
The Court concluded that the arbitral award was unsustainable in law and contrary to settled contractual principles, reiterating that arbitral tribunals cannot impose obligations where consensus ad idem is absent.
