Stayzilla Saga: Supreme Court Orders Status Quo in Homestay Aggregator’s Appeal Against Insolvency

In a recent development in the Stayzilla case, the Supreme Court has given an interim order of status quo in an appeal against the insolvency proceedings of the homestay aggregator. The order thus freezes the  insolvency resolution process (IRP) ordered by the National Company Law Tribunal (NCLT) in September this year.

The National Company Law Tribunal bench in Chennai had ordered the initiation of insolvency proceedings against defunct homestay network StayZilla two months ago. 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.

But last week, hearing the appeal filed by Stayzilla founder Yogendra Vasupal, a two-judge bench at the apex court granted a week’s time to respond for advertising vendor Jigsaw Solutions and a week’s time for a rejoinder before listing the case for further hearing. Till that time, both parties have been ordered to maintain status quo.

Stayzilla And The Insolvency Proceedings

Founded in 2005 by Sachit Singhi, Yogendra Vasupal, Rupal Yogendra, as Inasra, and later rebranded as Stayzilla in 2010 – the platform acted as a marketplace for homestays and alternate stays in India, with around 55,000 stay options across 4,500 towns in the country.

The platform catered to both homeowners and travellers looking for differentiated, unique stay experiences. Yogendra founded the company with his wife Rupal Yogendra and his friend Sachit Singhi.

Initially, funded by Indian Angel Network with an infusion $500K in Seed round, Stayzilla had raised an undisclosed Series A in 2013. It got further funding in 2015 when Nexus and Matrix put in $20 Mn in Series B and later $13 Mn Series C in 2016. The startup competed with Fab Hotels, Yatra, OYO, Airbnb, MakeMyTrip and others.

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 had 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.

The Tribunal had 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].

It was after the dismissal at the National Company Law Appellate Tribunal (NCLAT), that Stayzilla founder Vasupal had approached the Supreme Court recently.

Samratt KR, one of the counsellors for Vasupal, stated, “Our case rests on the ground that the presence of a pre-existing dispute, unresolved and pending a criminal case, erodes the necessity for the implementation of the Insolvency and Bankruptcy Code (IBC).”

The ‘pre-existing dispute’ being referred to here came to light weeks after Vasupal declared in February this year, through a blogpost, his decision to suspend operations and to work on a reboot of Stayzilla. Soon in March, based on a complaint from Jigsaw, Vasupal was arrested by the police on counts of cheating. At this moment, the Supreme Court decision to freeze the insolvency proceedings is a critical point in the beleaguered startup’s harrowing legal trysts this year.

[The development was first reported by ET]