Stayzilla Saga: NCLT Orders Insolvency Proceedings Against Homestay Aggregator

The National Company Law Tribunal bench in Chennai has ordered the initiation of insolvency proceedings against defunct homestay network StayZilla. The startup became a nationwide sensation in June 2017, when Yogendra Vasupal, CEO and co-founder of Stayzilla, was arrested on charges of fraud for about $265K (INR 1.72 Cr) by Jigsaw Advertising Agency.

For the insolvency proceeding the Tribunal had stated that since a judgement is pending in a criminal case filed against founder Vasupal, the application for insolvency proceedings by Jigsaw should not be considered.

The Stayzilla Saga

Founded in 2005 by Yogendra with his wife Rupal and his friend Sachit Singhi as Inasra, and later rebranded to Stayzilla in 2010 – the platform acted as an Indian marketplace for homestay and alternate stays. It had around 55K stay options across 4,500 towns across the country. In a blog post in February earlier this year, Yogendra had announced his decision of suspending Stayzilla operations.

A Medium blogpost, written by Yogendra appeared hours after his arrest, as a cry for help from a founder who claimed to have been wrongfully arrested.

At that time, in a complaint against Stayzilla, Jigsaw Advertising CEO Aditya CS claimed that Stayzilla founders were fraudulent and the company never conveyed any deficiency in services to them. The report also contained an audit confirmation letter by Insara Technologies, the parent company of Stayzilla, acknowledging a balance of about $265K which was due to Jigsaw.

Yogendra Vasupal was finally granted bail by Madras High Court after spending about 28 days in jail. Vasupal was granted bail on a condition that he should deposit about $62K (INR 40 Lakhs) with the court.

The Insolvency Proceedings

As per sources in the know, Stayzilla owed a total amount of about $1.38 Mn (INR 9 Cr) to Jigsaw. Of this, only the disputed amount of about $265K  (INR 1.72 Cr) of the billboards was not paid by the Stayzilla team.

On the insolvency proceedings, the NCLT reasoned that the homestay aggregator Stayzilla failed to show how the pending criminal case would qualify for consideration under Subsection (6) of Section 5 of the Insolvency and Bankruptcy Code, 2016. The said section refers to an existing dispute that a vendor and a client before a demand notice is sent under Section 8 of the Insolvency and Bankruptcy Code.

Commenting on the NCLT order to start insolvency proceedings, Stayzilla CEO Yogendra Vasupal said, “The problem for us was that we communicated it verbally and did not want to make a legal issue of it so as not to harm his reputation. If we had sent one notice instead of communicating it verbally, we would not have been declared a defaulter.”

The Tribunal pointed out, “But, he [StayZilla] failed to point out any dispute which could come under the ambit of the “disputes, if any .” Ordering the insolvency, the tribunal said: “… it is established that the Corporate Debtor [Stayzilla] has committed default in making payment of the outstanding debt to the debtor along with interest as claimed by the operational creditor [Jigsaw].

Post the orders by the NCLT, an Insolvency Resolution Professional which has been appointed will have a board of creditors to evaluate claims of due payment and get into the process of liquidation of assets for settling dues.

CEO of homestay aggregator Stayzilla, Yogendra Vasupal and his team can contest the NCLT order. However, the recent decision is a boost for creditors that are seeking legal help against startups that shut down and leave the creditors in a lurch.

(The development was reported ET)