OYO Vs ZO Rooms Battle Wages On: OYO Files Criminal Complaint Against Zostel Founders For Blackmailing

What was once seen as a perfect match has now turned into an ugly fight. As SoftBank-backed OYO and Tiger Global-backed ZO Rooms merger falls flat, OYO has once again filed a complaint against Zostel Hospitality Pvt Ltd, the parent company of ZO Rooms, alleging continuous inconvenience and harassment by Zostel founders.

OYO has filed a fresh criminal complaint against the founders of Zostel on January 16, 2018, under Section 405, 406, 415, 420, 425 and 426 pertaining to criminal breach of trust, cheating and misrepresentation of data, said the company in a statement.

OYO imputes that in order to ramp up their tactics, Zostel, as a part of their counterblast strategy has filed a misconceived and baseless Section 9 arbitration petition in the Gurugram court on February 2, 2018, making false allegations against OYO pertaining to some of its hotels, employees and asset transfer.

“These allegations relate to a long expired and non-binding term sheet. It is absolutely false to suggest that OYO benefited from talks of the deal since the Zo business had been faltering at that stage. There was also no response to a list of issues identified during our diligence process, including significant liabilities and unpaid dues as well as undisclosed contingent liabilities,” reads OYO statement.

An OYO spokesperson indicted, “Since more than one-year, we’ve been continuously inconvenienced and harassed by Zostel and its directors. They’ve used every tactic, from sending letters carrying false allegations to OYO’s management to writing to our shareholders, for intimidating and pressurising us to submit to their unreasonable demands.”

The spokesperson further added, “They are only trying to arm twist and blackmail OYO and its investors into getting their deal done without having a real business or even a binding agreement at hand and threatening us through legal routes.”

Inc42 has also contacted ZO Rooms in this regard and the story will be further updated after it receives their statement pertaining to the criminal case filed against them.

Besides alleging continuous harassment, OYO spokesperson stated, “Getting into a deal with this background would have been harmful to our reputation and our business. OYO ultimately saw little value in Zostel’s business and there was a significant loss of trust owing to issues mentioned in our previous statement.”

“In any event, while they claim that they have always been willing to do the deal but they shut down the app and website giving neither us nor their customers or owners any prior notice thereby making it impossible for Zostel to ever affect any customer migration leave alone a smooth business transfer which was key to the deal discussion.”

OYO Vs ZO Rooms: 2-year Long Love-Hate Relationship  

In 2015 too, OYO had taken ZO Rooms to court over alleged theft of its copyright material. However, the Delhi High Court on April 21, 2015 had issued a stay order against ZO Rooms then.

Then, OYO had filed criminal cases under section 379, 414, 420 and 120B of IPC and other implications under IT and Copyright Acts with the Economic Offences Wing & Cybercrime department against senior employees of Zostel for stealing data and other assets including laptops which continue to be under Zostel’s access even now and being used to its benefit.

In the Copyright theft case, true to the screenplay of a Bollywood movie Rocket Singh: Salesman Of The Year, OYO apparently produced emails and CCTV footage claiming the theft of its ‘software’ by few of its own employees who apparently left to join Zostel.

Despite the Court-fight, in the late 2015, OYO apparently explored a potential acquisition of ZO Rooms. However, after more than almost two-year of speculation, in an official statement in 2017, OYO later confirmed that it is no longer involved in talks with ZO Rooms for a potential acquisition.

The statement read, “The non-binding term sheet for this deal already stands terminated in September 2016. Following this, we tried to identify potential value in their business but could not reach an outcome. We can now confirm that OYO has ended all discussions on the matter.”

However, ZO in its statement mentioned that OYO is resiling from the contractual terms after acquiring the entire ZO Rooms business by March 2016. “This is not an act in good faith and Zo takes a very serious view of the matter and will take all steps to protect its interests and enforce its rights,” the company said.

Zostel Hospitality Pvt Ltd, Zo Room’s parent company, was founded in August 2013 by Dharamveer Chouhan, Akhil Malik, Paavan Nanda, Tarun Tiwari, Chetan Singh Chauhan, Abhishek Bhutra and Siddharth Janghu with an initial corpus of $30K (INR 20 Lakh). The startup has two brands i.e. ZO Rooms and Zostel.

It was in December 2014, when Zostel entered the budget hotel space with ZO Rooms, a chain of premium budget hotels which grew to 750+ properties across 51 cities in India within 10 months of its launch.

A court-fight between startups or falling apart from a possible merger is not something new. Besides the StayZilla’s founder Yogendra Vasupal’s late stay-landing in jail case, as the Indian startup ecosystem is one of the fastest evolving startup ecosystems in the world, criminal cases pertaining to startups are also increasing at a fast pace. This latest news and continuous blame-game are certainly not pleasant for the fast evolving startup ecosystem of India.

Update: 11:30 AM, 20 Feb

Zostel Hospitality in its petition filed on February 2, 2018 alleged that OYO had acquired its 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.

The petition says, “In the garb of obtaining certain confidential information, (OYO) has in fact acquired the entire business of the petitioner (ZO Rooms) and is now refusing to pay the dues owed to the petitioner.”