OYO vs Zo – Zostel claims victory while the Ritesh Agarwal-led firm says there’s still room to win

• OYO and Zo Rooms have been in a legal tussle for over three years now.
• The dispute was over the merger between OYO and Zo Hostels, where the latter said it was denied its 7% shareholding in Oravel Stays, the parent company of OYO.
• The tribunal said that Zo Rooms’ parent Zostel Hospitality was entitled to claim relief and costs in the case, but acknowledged that definitive agreements weren’t executed.

After a three-year long battle, the legal verdict on OYO Hotels and Homes and Zo Hostels is out, but both companies continue to sing their own tunes. The dispute was over the merger between OYO and Zo Hostels, where the latter said it was denied its 7% shareholding in Oravel Stays Pvt. Ltd, the parent company of the Ritesh Agarwal-led OYO.

The Arbitral Tribunal comprising former Chief Justice of India AM Ahmadi said that Zo Rooms’ parent Zostel Hospitality Pvt. Ltd was entitled to claim relief and costs in the case, but acknowledged that definitive agreements of the deal weren’t executed.

Two sides of the same coin

Zo Rooms, which was a hotel aggregator founded by Zostel founders, claimed victory in the case saying that the agreement between OYO and Zo was binding. “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 evidence produced by us over the last 3 years,” said Paavan Nanda, co-founder of Zostel, who led the process, in a statement. Nanda is also the co-founder of gaming platform WinZO.

As per Zo, OYO now has to compensate the stakeholders of Zo for their 7% shares. “If the order from the arbitrator is to be given effect, allotment of 7% 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,” said Zo in a statement.

However, OYO refuted the claims and is currently evaluating legal remedies to challenge the award. The hospitality firm, valued at $9 billion, said that even with the legal battle, Zo ‘continues to misrepresent and latch on to OYO’.

OYO said that the arbitration hasn’t given any direction for issuance of shares as the definitive agreement was neither agreed upon nor consummated and therefore closing conditions were far from being achieved.

“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,” read OYO’s statement.

Here’s a look at the timeline of events

2015: OYO’s lead investor SoftBank in its annual report claims that the Ritesh Agarwal-led startup had acquired its rival Zo Rooms.

September, 2016: Merger talks between the two companies fall through.

2017: OYO confirms that it has ended all discussions in the matter and says, “we tried to identify potential value in their business but could not reach an outcome”.

2018: Zo Rooms takes OYO to court claiming ‘data theft’ while doing the due diligence during the acquisition talks.

February, 2018: Gurugram court hands the ruling in favour of OYO. Zo Rooms says it doesn’t have the financial bandwidth to ‘incur prolonged legal costs’. However, soon after Zo approached the Supreme Court.

October, 2018: Supreme Court appoints a three-judge bench to evaluate the matter.

January, 2020: Zo Rooms once again files a plea over OYO’s restructuring of its board, says that the restructuring will hamper Zo’s claims of 7% stake in OYO.

March, 2021: The tribunal said that Zo Rooms parent Zostel Hospitality was entitled to claim relief and costs in the case, however acknowledged that definitive agreements weren’t executed.

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