NCLAT To Continue Hearing Insolvency Plea Against OYO, Despite Company’s Settlement With First Creditor

Even as OYO has reached a private settlement with the original plaintiff Rakesh Yadav in an ongoing insolvency case in National Company Law Tribunal (NCLT), the court will continue to hear the case based on numerous other creditors who are now party to the case demanding the traveltech unicorn to clear their dues. 

In April 2021 one of OYO’s subsidiary unit OYO Hotels and Homes Private Limited (OHHPL) was dragged to NCLT under the bankruptcy and insolvency code, by Yellow White Residency Hotel demanding clearance of dues worth INR 16 lakhs. Once the NCLT admits a claim on behalf of a creditor to be recovered from the bankruptcy proceedings, the tribunal also allows other creditors to become party to the ongoing case. Over the last two months multiple creditors have filed for unverified claims amounting to INR 250 Cr, Inc42 reported on June 5 2021.

Rakesh Yadav, the first plaintiff in the case against OYO, had originally approached the Ahmedabad bench of NCLT  April 1, demanding clearance of unpaid dues owed by one of OYO’s subsidiary unit OHHPL.

In his plea before the tribunal court, Yadav stated that his company Yellow White Residency Hotel did not receive payments worth INR 16 lakhs from OHHPL between July to December 2019. However, after the case was admitted into hearing in the tribunal court on April 7, 2021, other ex-OYO hotel partners had come forward in the court alleging that OYO had failed to honor their payments in the past. 

For Yadav’s case, the court-appointed advocate Keyur Jagdishbhai Shah as the Interim Resolution Professional (IRP) to lead the proceedings. 

However, OYO had appealed for a stay on the insolvency proceedings in the NCLAT on April 8 following which the NCLT provided a partial stay order on the proceedings. Although by April 30, OYO privately settled Yadav’s dues of INR 16 lakhs after several ex-hotel partners approached the court with allegations of crores worth in dues owed to them.

Speaking to Inc42, the IRP professional appointed to the case, Shah said that the court has not disposed off the several other claims made by other hoteliers who had business transactions with OYO in the past, even though the original applicant (Mr Yadav) has settled the matter with OYO.

“The settlement agreement between the original applicant and OYO was already filed with NCLT; but other claimants came forward contesting the withdrawal stating that they also have to get their money. Normally such interlocutory applications are not entertained post settlement, but it is still up to the court to decide. On the basis of merit, the court will hear the case being made by other claimants,” Shah added.

In a statement on June 5, Srinivas Kotni, the advocate who had appeared for the main plaintiff said that Mr Yadav had sought a withdrawal of the ongoing insolvency case against OHHPL in National Company Law Tribunal (NCLT), and that a withdrawal application was already filed with the court. 

“Further, my client acknowledges the receipt of INR 16 Lakhs. The interveners, in my view, should separately pursue appropriate legal proceedings to recover any alleged dues they may have against OYO. Raising such unsubstantiated claims in the present proceedings is causing undue delay and imposition of harsh financial costs on our client,” Srinivas Kotni of Lexport (advocate who had appeared for Yadav) said. 

What Creditors Have Told The Court

Currently, OYO has some relief in the ongoing insolvency case since the court stayed the formation of CoC (Committee of Creditors), which could have had far greater repercussions for the hospitality startup. Under India’s Insolvency and Bankruptcy Code, 2016, a CoC is formed and authorised to decide upon the regular functioning of the company i.e. the debtor during the insolvency resolution process in case the company is found to be unable to pay off debts.

Although the Corporate Insolvency Resolution Process (CIRP) against OYO subsidiary OHHPL continues in the tribunal court. Under the CIRP proceedings, any creditor belonging to OHHPL was allowed to file for disputed money owed to them.

Under this process, the original disputed claim of INR 16 lakhs has now piled up and grown to INR 250 Cr (some being unverified) out of which claims worth INR 90 Cr were submitted by the Federation of Hotel & Restaurant Associations of India (FHRAI) on behalf of 30 hoteliers (attached below).

In addition to FHRAI’s claims, 11 other independent hotel partners of OYO had separately filed for claims worth INR 35 Cr, according to the case document submitted to the appellate court. Inc42 accessed and reviewed a copy of the case document. These hotel partners are from cities such as Panjim, Mumbai, Chandigarh, Bengaluru, Indore, and New Delhi.

Inc42 was not able to verify the names and details of other claimants for the remaining claims of INR 125 Cr. Earlier on April 19, Mr. Yadav’s advocate Srinivas Kotni had confirmed that the court had received unverified claims worth INR 160 Cr with the tribunal. In the case document submitted by the creditors to the court on May 27, 2021, the claimants argued that the corporate debtor (OYO) “had begun defaulting towards its payment and obligations in terms of the agreements at various times, and has till date failed to clear its dues”. 

The claimants also pointed out that despite an ongoing insolvency case against OYO, “shockingly on April 30, 2021, Respondent No. 1 (Rakesh Yadav) accepted that a settlement had been arrived at”. They further pleaded the court to carry forward the insolvency proceedings despite the main party withdrawing the case.

“It is apparent that the Corporate Debtor (OYO) is not in position to discharge the debts of the present intervenors. Even the dues for other operational creditors have been withheld by the corporate debtor due to their inability to pay debts,” the claimants submitted in the case document seen by Inc42.

Creditors’ Claims Are Yet To Be Verified By Court

It is important to note that all of these claims submitted before the court by OYO’s hotel partners are unverified, and were made using interlocutory applications.

In legal terms, an interlocutory application is a request made by one party asking the court to help with an ongoing legal case. Such applications can be filed for either seeking a special request or for protecting the rights of the party involved in the case. In any interlocutory application made by a party, the opposing party has to agree to the demands or requests; if the opposing party does not consent to the application, then the court goes for an interlocutory hearing.

However, in a statement on June 5, 20201, OYO said that it “vehemently denies” all the unverified claims being made in the ongoing insolvency resolution process with the NCLAT. Currently, the NCLAT matter is adjourned till  July 2, 2021. 

OYO further highlighted that the interveners have “no locus (standi) in this matter” and that the disputed claims are not grounds for intervention. “The company also denied the unverified and baseless rumors being made around the monetary claims involved in the matter,” the hospitality startup added.

Note that OYO isn’t the only startup being dragged to tribunal courts under the insolvency code. In February 2020, Flipkart also received such a petition, which was eventually set aside. Last year, the NCLT had dismissed an order of the dedicated bankruptcy court which had initiated insolvency proceedings against Flipkart by Cloudwalker Streaming Technologies Pvt Ltd.

OYO has a troubled history of financial disputes with hotel owners and is currently fighting several such cases in other courts across the country. Hotel partners working with OYO had earlier taken the hospitality startup to court in June 2020 over alleged non-payment of dues. At that time, a bench headed by the Delhi High Court ordered OYO to file an affidavit detailing unencumbered (debt-free) assets owned by the firm. The order came in the light of a case filed by hospitality company Anam Datsec, which had accused OYO of non-payment of dues for its Golden Sands property at Calangute in Goa and sought more than INR 8 Cr in damages.

This comes at a time when OYO has collaborated with other traveltech giants such as Easemytrip, Airbnb, Yatra and more to form a new lobby group — Confederation of Hospitality, Technology and Tourism Industry. The lobby groups aims to aid small hotel owners, independent hosts and operators to recover from the impact of covid-19