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This article is more than 8 month old.

OYO vs ZO Rooms: Zostel claims win in 3-year legal battle; OYO refutes

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The Term Sheet executed between the two parties on November 26, 2015, promised ZO Rooms’ shareholders 7 percent of OYO.

OYO vs ZO Rooms: Zostel claims win in 3-year legal battle; OYO refutes
Hostel chain Zostel Hospitality Pvt Ltd, which owns Zostel Hostels and ZO Rooms, said that it has won a three-year legal battle against Oravel Stays Pvt. Ltd, the parent company of hospitality major OYO Hotels & Homes. This is expected to lead to shareholders of ZO Rooms owning 7 percent in OYO.
The Arbitral Tribunal ruled that OYO acted in breach of its binding agreement after its acquisition of rival Zostel Hospitality and directed OYO to sign the documents and issue the shareholding as committed in the Term Sheet.
The Term Sheet executed between the two parties on November 26, 2015, promised ZO Rooms’ shareholders 7 percent of OYO.
According to Zostel, ZO Rooms completed its obligation under the agreement and transferred the business but OYO failed to transfer 7 percent to ZO Rooms' shareholders, which eventually led to the arbitration process.
Zostel in its statement said: “If the order from the Arbitrator is to be given effect, allotment of 7 percent to ZO Rooms' shareholders will make this outcome the biggest exit in the Indian startup ecosystem.”
The order was pronounced by the Arbitral Tribunal, Former Chief Justice of India, Justice AM Ahmadi on March 6, 2021.
“We welcome the judgement by the Hon'ble Tribunal. 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,” said Paavan Nanda, Ex Co-founder, Zostel.
However, in a blog on Sunday evening, OYO said, “We are stating that the Arbitration Tribunal has granted no specific relief to Zostel in terms of receiving ownership in OYO.”
OYO said that the Tribunal hasn't given any direction for issuance of shares as the definitive agreement was neither agreed nor consummated and therefore, "closing conditions were far from being achieved and the same has been acknowledged by the Arbitrator".
The tribunal has ruled and categorically acknowledged that the definitive agreements, which are extremely important documents for any M&A transaction, were neither finalised nor agreed upon, the blog said.
The final award, however, purports to provide Zostel a right to initiate "appropriate proceedings" and for seeking execution of the definitive agreement while no specific remedy for the same was granted except against their prayer for a cost which OYO will "vehemently" oppose in all avenues available under the law of the land, it said.
“This tribunal holds that claimant is entitled to specific performance of the respondent's obligations under Term Sheet data on November 26, 2015. However, as definitive agreements have yet o be executed, the tribunal holds that the claimant is entitled to appropriate proceedings for specific performance and execution of the definitive agreement as envisaged for itself and its shareholders under the term sheet, " said the award.
"Experts also believe that not just transactions going forward will find it hard to negotiate due to the inability to be sure if the Non-Binding term sheet will remain non-binding or not, such an award will not be executable, given multiple stakeholders, multi stage complexities and agree on a definitive agreement as of date where most of the terms are no longer possible of being completed by the claimants," OYO said.
As per OYO's blog, while giving direction for seeking specific performance of the non-binding term sheet, the tribunal has not acceded to the request of Zostel and its shareholders demanding monetary damage from OYO.
It was clearly stated that the relief seeking $1 million by Zostel couldn't be granted as the same is dependent on the fulfillment of post-closing obligations and the definitive agreements where post-closing obligations were to be negotiated and agreed were not agreed mutually and executed, it said.
"OYO continues to strongly hold its position that the parties were merely at the stage of discussions and no definitive agreements were finalized between the parties, as has also been confirmed by the Tribunal," said the blog.
(With agency inputs)
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