Supreme Court appoints arbitrator for Oyo-Zo dispute over failed merger talks

The Supreme Court has appointed an arbitrator in a bid to resolve the drawn-out dispute between hotel aggregators Zo Rooms and Oyo Rooms resulting from failed merger talks.

The development comes in the wake of defunct Zo, operated by Zostel Hospitality, moving Supreme Court for arbitration after lower courts ruled in favour of SoftBank-backed Oyo.

In October 2017, Oyo said it had ended negotiations but Zo later claimed the SoftBank-backed entity had acquired its business in March 2016 only to abandon its contractual obligations. The companies have been engaged in legal battles ever since, with both suing each other.

Today, Zo said in a statement that the Supreme Court had observed that a binding arbitration clause exists as per the term sheet for the merger. Oyo said in a statement that the arbitration proceedings will not have any bearing on the other suits against Zo.

In January this year, Oyo had filed a criminal complaint against the founders of Zostel for breach of trust, cheating, and misrepresentation of data. Before that, Oyo had filed other criminal cases against senior employees of Zo for stealing data and other assets including laptops.

The businesses

Zo was founded in 2014 by Dharmveer Singh Chauhan, Paavan Nanda, Tarun Tiwari, Abhishek Bhutra, Akhil Malik, Chetan Chauhan, and Siddharth Janghu. Some co-founders are no longer with the firm.

It ran a now-defunct online budget hotel brand that operated in major cities and enabled users to book rooms through its mobile application. Zo still provides this service for hostels under the Zostel brand. Zo was initially seen as a tough rival of Oyo. But SoftBank's massive investment in Oyo in 2015 significantly changed the dynamics.

Zo last raised funding in July 2015, when US-based Tiger Global and Mumbai-based Orios Venture Partners invested an undisclosed amount. Reports had pegged the investment at $32 million (Rs 209 crore then). 

Oyo was founded in 2012 as a budget hotel aggregator by Ritesh Agarwal, at the age of 17. 

Last week, Oyo said it had received $800 million from SoftBank’s Vision Fund and investment firms including Lightspeed Venture Partners, Sequoia Capital and Greenoaks Capital, with commitments for a further $200 million.

A person told TechCircle that the additional capital would come from the same investors. 

Oyo is raising the fresh capital at a valuation of around $5 billion, the person added. This would represent a big jump from the $850 million at which Oyo was reportedly valued when it received $250 million (Rs 1,600 crore) in a Series D round from SoftBank in September 2017.