SoftBank Group-backed Oyo Hotels & Rooms is facing a legal battle with rival Zostel before debuting in the $1.2 billion market over a deal between two Indian hospitality startups that split six years ago.
Oyo is looking to raise between $1 billion and $1.2 billion through a new share issue and an offer for sale from existing shareholders. The company is set to file draft initial public offering documents this month, Reuters reported last week, joining a wave of Indian start-ups looking to go public this year.
But Zostel filed a petition in the Delhi High Court in August to restrain Oyo from changing its shareholder structure through an IPO, said the petition seen by Reuters.
‘No fixed agreement’
His 2015 deal was for Oyo to buy out some of Zostel’s businesses, while Zostel would get a 7% stake in Oyo. The transaction broke down, but there is an ongoing legal battle between the companies over the terms, with Oyo arguing that they had not reached a definitive agreement.
In 2018, the Supreme Court of India appointed an arbitrator on the matter, which ruled in March this year that the terms of the deal were binding and Zostel was entitled to claim a 7% stake in Oyo.
The arbitrator said that Zostel “did everything within its control to fulfill its obligations” while Oyo breached its obligations by failing to execute a definitive agreement.
Oyo has challenged the arbitration order in the Delhi High Court.
An Oyo legal counsel said in a statement to Reuters on Wednesday: “Unless the parties have agreed to the terms of certain agreements and they are executed, no right arises in favor of either party.” Types of shares to be issued in OYO.”
Responding to Reuters, Zostel co-founder Pawan Nanda said that Zostel is opposed to any attempt by Oyo to change its shareholding structure.
Oyo’s lawyers in court on Wednesday objected to the request by Zostel’s counsel to hold a 7% stake in escrow. The judge turned down the request and fixed October 7 for a detailed hearing of the case.
Since its launch in 2013 by CEO Ritesh Agarwal, Oyo has grown rapidly, competing with US home rental company Airbnb and home chains such as Fab Hotels and Treebo.
It runs operations in 35 countries, including India, European Indonesia, and counts Sequoia Capital and Lightspeed Venture e-Partners, among its other investors.
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