Arbitral tribunal rules in favour of Zostel in OYO-Zostel deal, OYO to challenge ruling

An arbitral tribunal on Saturday ruled in favour of Zostel Hospitality, which runs Zostel Hostels and ZO Rooms, in the Zostel-Oravel Stays case.

As per the ruling, Zostel is entitled to take up proceedings for execution of definitive agreement between itself and the OYO parent under the term sheet. This, as per Zostel’s statement, translates to it owning 7% of OYO, marking the largest acquisition in the Indian startup ecosystem.

The tribunal order, dated March 6, said, “However, as definitive agreements have yet to be executed, the tribunal holds that the claimant (Zostel) is entitled to take appropriate proceedings for specific performance and execution of the definitive agreement as envisaged, for itself and its shareholders under the term sheet.”

In November 2015, OYO had acquired the hotel business of ZO Rooms and the standalone hostel booking platform, Zostel, in an all-stock deal. The term sheet had promised ZO Rooms’ shareholders a cumulative 7% stake in OYO.

OYO terminated the deal in September 2016, claiming that it did not identify potential value in the transaction. The SoftBank-back startup, at the time, also filed a criminal complaint against Zostel founders for allegedly harassing it into a deal without a definitive term sheet.

In response to the latest ruling, OYO denied that there was any relief granted to Zostel in terms of stake ownership in OYO. In a company blog, OYO said, “We have noted some messages being circulated by Zostel, and hence, in the interest of setting the record straight, we are stating that the arbitration tribunal has granted no specific relief to Zostel in terms of receiving ownership in OYO.”

The blog added, “The arbitration hasn’t given any direction for issuance of shares, as the definitive agreement was neither agreed (to) nor consummated, and therefore, closing conditions were far from being achieved and the same has been acknowledged by the arbitrator.”

OYO added that it would challenge the ruling, “which treats a non-binding term sheet as a binding document” in order to offer rights and remedies to Zostel.