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Delhi High Court Dismisses Zostel's Plea Against OYO

Subsequently, owing to defaults on the part of Oravel, Zostel was unable to acquire the assets of Oravel and an award was passed in March 2021 against Oravel in an arbitration proceeding. 

Zostel claimed that under arbitral award, it is entitled to receive 7% of equity shares of Oravel.
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The Delhi High Court has refused to interfere with Oravel Stays' move to make an initial public offering (IPO) and dismissed a plea by Zostel Hospitality claiming seven per cent equity shares of OYO's parent firm (Oravel Stay's) pursuant to an arbitration award in its favour. 

Justice C Hari Shankar stated that there was no case made out for granting an injunction against the floating of IPO by Oravel and ordered that “the petition is, therefore, dismissed”.

Zostel Hospitality Pvt Ltd and one of its investor-shareholders Orios Venture Partners were parties to a “Term Sheet” with Oravel Stays Pvt Ltd, under which Zostel would transfer its hotel business to Oravel and Orios, against which Oravel would transfer “identified assets” which included seven per cent of its shareholding to Zostel. 

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Subsequently, owing to defaults on the part of Oravel, Zostel was unable to acquire the assets of Oravel and an award was passed in March 2021 against Oravel in an arbitration proceeding. 

Seeking interim protection from the high court after the award was passed, Zostel claimed that under the arbitral award, it is entitled to receive seven per cent of the equity shares of Oravel and therefore, Oravel could not be allowed to take any steps, including floating an IPO, which would frustrate the enforcement of the award.  

Once an IPO is floated by Oravel, Zostel would no longer be able to obtain specific performance of the Term Sheet, which would render the Award completely unenforceable in law, it was submitted. 

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The court held that the arbitral award was not a decree for the execution but “merely a decree enabling Zostel to take proceedings for execution” of the arrangement in question. 

“Where Mr. (Amit) Sibal appears (senior counsel for Zostel), however, to err, is in his contention that the arbitral award, in the present case, directs the specific performance. It does not do so. All it does is to recognize the right of Zostel to take appropriate proceedings for specific performance, specific performance of the Term Sheet being, as per the Award, Zostel's entitlement,” the court stated in its order passed on February 14. 

The court said that as of now, the right to receive seven per cent equity shares of Oravel has not crystallised in favour of Zostel and said that “no case, for the injuncting making of the IPO by Oravel, can be said to exist.”

“For the reasons already elucidated hereinabove, it cannot be said that, as on date, the right to receive seven per cent equity shares of Oravel has crystallised in favour of Zostel. Though Zostel's entitlement, in this regard, stands recognized and, perhaps even certified, by the arbitral Award, the learned Arbitrator has, nonetheless, hedged in the certification by the caveat that the right, in that regard, could be invoked by Zostel only in terms of Clause 4 of the Term Sheet, “upon closing”,” it added.

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