Backpacker hostel startup Zostel on Sunday mentioned it has won the 3-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 soon after the acquisition of Zostel that ran price range hotel chain and OYO’s smaller sized 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 beneath the agreement and transferred the enterprise but OYO failed to transfer 7 per cent to the ZO Room’s shareholder, which ultimately led to the lately concluded Arbitration, the business added in an official statement. However, OYO maintained that there is no relief to ZO Rooms in terms of finding 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 mentioned in its official statement. The Ritesh Agarwal-led business also claimed that no definitive agreements are in spot to consummate the transaction and that the tribunal has categorically acknowledged it and that the definitive agreements, significant documentation for any M&A transaction, have been neither finalized nor agreed.
Further, the Arbitral Tribunal, Zostel mentioned, held that the term sheet amongst Zostel and OYO was a binding agreement and that OYO breached the term sheet by not executing definitive documents due to OYO’s internal challenge. The Tribunal also recognised that the transaction was consummated as ZO Rooms transferred the whole enterprise 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 to execute definitive agreement,” the business mentioned. The order was pronounced by the Arbitral Tribunal, Former Chief Justice of India, Justice AM Ahmadi on March 6, 2021.
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“Beyond the monetary compensation, it was a fight for our rights and reputation. We are extremely relieved with the judgement that the arbitral tribunal has pronounced after diligently evaluating the merits and evidences produced by us over the last 3 years,” Paavan Nanda, former Co-founder, Zostel mentioned in the statement.
However, according to OYO, although the order noted that the non-binding term sheet is to be held as binding, the term sheet itself has various crucial components like assets, worth, and so on. such as commercials that have been not agreed inside the term sheets itself. The business mentioned that only legal charges have been awarded as damages to ZO Rooms even as “the 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 was represented by lawyers such as Dr. Abhishek Manu Singhvi, Salman Khurshid, amongst other folks although ZO Rooms was represented by Abhishek Malhotra, Managing Partner at Delhi-based law firm TMT Law Practice. Zostel mentioned that “if the order from the Arbitrator is to be given effect, allotment of 7 per cent 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.”