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Zostel writes to SEBI, alleges Oyo’s response as ‘misleading’
Photo Credit: Reuters

Zostel Hospitality Pvt. Ltd., which owns Zostel Hostels and ZO Rooms, has filed a rejoinder with markets regulator Securities and Exchange Board of India (SEBI), alleging that hospitality unicorn, Oyo has yet again ‘misrepresented the legal facts’ and ‘misled the authorities’ about the acquisition deal between both parties. 

Responding to Zostel’s rejection plea towards the initial public offering (IPO), Oravel Stays Ltd, which runs Oyo hotels said on October 22 that the two parties had “mutually agreed" to terminate the acquisition deal in 2016. 

In a fresh letter to SEBI on Tuesday, Zostel alleged Oyo’s response to be a ‘miserable effort’ to re-contest the factual and legal position that has already been held against Oyo. 

Zostel has further alleged that the documents provided by Oyo have already been reviewed by a tribunal before passing a judgement in its favour. 

“Upon a reading of the Award, it becomes abundantly clear that the OYO Response is composed solely of Oyo’s arguments advanced before the Tribunal, all of which have been categorically rejected. Accordingly, what is cited by OYO in the OYO Response, is extracts from their own pleadings or arguments – all of which have been considered and rejected by the Tribunal ,” said Zostel in a letter to SEBI on Tuesday evening. 

In March this year, an arbitral tribunal ruled in favour of Zostel, calling the term sheet that promised ZO Rooms’ shareholders 7% of hospitality unicorn Oyo as a binding document.

ZO Rooms and Oyo had entered into talks for a merger in 2015, executing an agreement on 26 November that year, according to Zostel Hospitality. ZO Rooms completed its obligation under the agreement and transferred the business, but Oyo failed to transfer 7% to the ZO Room’s shareholder, Zostel had alleged earlier.

Oyo said that the deal was called off because of various issues, including “non-completion of the due diligence process" and “transaction structuring" raised by Zostel, Oravel Stays said in its written response to Sebi on 22 October.

On 10 April this year, Oyo challenged the tribunal’s decision and sought a stay on the implementation of the award from the Delhi high court. 

Since then, Zostel has also filed fresh petitions with the Delhi high court for execution of the award provided by the tribunal and an application for interim relief barring Oyo from changing its shareholding. 

“Thus, it is reiterated that if the Court (Delhi high court) agrees to not interfere with the Award, Zostel’s shareholders will be entitled to get 7% shares in Oravel. That is why we say that the shareholding of Oravel is not yet frozen or final. In view of the failure to provide for the awarded 7% shares in favour of Zostel shareholders. Hence, the IPO cannot be permitted to proceed,” added Zostel’s letter to SEBI on Tuesday. 

Oyo and Zostel did not reply to Mint’s queries at the time of publishing the article. 

“As per the law laid down by the Supreme Court, the Court hearing the challenge to the award cannot “reappreciate” merits of the matter / evidence that has already been looked at by the Arbitrator in passing of the award in favour of Zostel. Only those legal issues can be looked at by the Court that hit aspects of public policy. It is thus malafide on behalf of Oyo to send the same background documentation to SEBI, which has already been considered by the arbitrator while granting the award”, said Abhishek Malhotra, managing partner, TMT Law Practice, which is representing Zostel.  

“If Oyo goes ahead with the IPO, the award will become infructuous, and Zostel will not be able to claim its share in Oravel Stays, because the grant of 7% will be impossible to obtain,” explained Malhotra.

Last month, Oravel Stays filed the paperwork for its  ₹8,430 crore share sale that is expected to value the operator of the hospitality unicorn Oyo Hotels and Homes at least at $10 billion. The initial share sale will see some of its investors, including Japan’s SoftBank Group, sell a part of their stake.

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