OYO Receives Shock From The Past Amid Mounting Troubles

OYO’s restructuring is now receiving shocks from the past as a former hotel operator and acquisition target, ZO Rooms, has escalated its ongoing case against the SoftBank-backed company.

The case has been in court for the last few years. OYO now has to explain its restructuring to the court-appointed arbitrator and to ZO Rooms. The first complaint in this case was filed by ZO Rooms in the Delhi High Court in 2017, after a proposed takeover deal by OYO fell through in 2016.

On January 21, 2020, ZO Rooms reportedly filed a plea against OYO’s decision to restructure its businesses and house them in new entities without informing the arbitrator or ZO Rooms. ZO Rooms was seeking a 7% stake in OYO parent — Oravel Stays as damages in the original complaint. It is now saying that since OYO has demerged its units, it will adversely affect the claim sought by ZO Rooms in the ongoing arbitration.

It is to be noted that OYO has divided its businesses into additional units — OYO Hotels and Homes and Oravel Stays Singapore. ZO Rooms has now made these companies party to its arbitration case. ZO Rooms is concerned that if OYO’s units are transferred or devalued, its claim of 7% of stake of OYO’s parent company will be valued at a lesser point.

In its order on January 24, the Delhi High Court has reportedly asked OYO to file a response on the matter to the arbitrator within two weeks. 

The Delhi high court has reportedly mentioned that the petition stands disposed of and the arbitrator should fix a date of hearing with consent of both the parties.

An OYO spokesperson reportedly said that it cannot comment specifically on the matter due to the prohibition imposed by judicial forums. “Important to note that this restructuring doesn’t have any adverse impact on the company’s value. The entire demerger process occurred and necessary filings were completed across different stages since March 2019 and even communicated publicly through newspaper advertisements in June 2019 and September 2019,” it added.

OYO had signed a term sheet to acquire the assets of ZO Rooms in 2015. However, after a long-delay, OYO called off the deal. Later, OYO filed a criminal case against ZO Rooms stating alleging continuous inconvenience and harassment by founders of ZO Rooms.

ZO Room’s parent company Zostel Hospitality Pvt. Ltd, in response, filed a petition on February 2, 2018, alleging that OYO had acquired  data of employees, assets, hotel properties under the pretext of accelerating the process of acquisition and is now refusing to pay the dues for the business acquired.

In October 2018, the Supreme Court accepted the arbitration petition by ZO Rooms and appointed Justice A M Ahmadi, former Chief Justice of India as the sole arbitrator.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.