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The Delhi High Court bench of Justice C Hari Shankar has granted relief today to IPO-bound Oyo, rejecting Zostel’s plea claiming 7% shareholding in $9-valued Oyo. The Court rejected Zostel’s plea claiming 7% shareholding in Oyo in terms of a March 2021 arbitral award.

The award was passed by an arbitral tribunal in a tussle between Oravel Stays Pvt Ltd (Oyo) and start-up Zostel Hospitality Pvt Ltd (Zostel), holding that Zo Rooms is entitled to allotment of 7% shareholding in Oyo.

Zostel had sought to open doors to what it was touting as the "biggest exit in the Indian startup eco-system".

The award was passed in a 3-year old arbitration dispute between the two hospitality giants, following a merger agreement based on a "Term Sheet" in 2015.

Zostel and Oyo had entered into what Zostel claimed to be a binding agreement, and Oyo claimed to be a non-binding agreement of "exploratory" nature in November 2015, under which Zostel claimed to have completed its obligations and transferred the business to Oyo. 

As per this agreement itself, Zostel claimed that Oyo was due to transfer 7% of its shareholding to Zo Rooms' shareholders, which it had defaulted upon - leading to the arbitration.

Referring to a regulatory filing, Zostel had claimed that Oyo had raised about $7.31 mln at a share price of $58,490 as a part of its Series F1 round, valuing Oyo at $9 bln, and if the arbitration award was given effect, it would make this the biggest exit in the Indian start-up eco-system after the Snapdeal-Freecharge deal of $400 mln in 2015.

The tribunal was chaired by former Chief Justice of India AM Ahmadi, who was appointed as the sole arbitrator in the matter in Oct 2018, following a Supreme Court directive.

The tribunal had said that, the only reason that the parties could not arrive at consensus ad idem in respect of the Definitive Documents, to follow the Term Sheet, was due to objections raised by Oyo's shareholder Venture Nursery, which issue was meant to be resolved by the Oyo.

It hsd noted that the Term Sheet executed between Zostel and Oyo in November 2015 was a binding document and that Zostel "did everything within their control to complete their obligations under the same," and that therefore they "cannot be held responsible for the acts and omissions of Oyo and/or its shareholders by virtue of which some of the obligations could not be fulfilled by Zostel."

Cause Title: Zostel Hospitality Pvt Ltd vs Oravel Stays Pvt Ltd & Anr.