Months after Oyo confirmed calling off acquisition talks with rival Zostel Hospitality, the budget hospitality chain has filed a criminal complaint against the founders of Zostel, which also runs Zo Rooms, apart from the hostel chain Zostel.
Oyo and Zo initiated talks in late-2015 and signed a non-binding term sheet for the deal. But the deal was terminated in September 2016 after Oyo claimed that it couldn’t identify potential value in their business.
Oyo now claims that Zostel and its directors have been inconveniencing and harassing Oyo for over a year.
"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. OYO has filed a 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,” Oyo said in a statement.
According to the company, Zostel is trying to ‘arm twist and blackmail’ Oyo and its investors into a deal without having a real business or a binding agreement in hand.
OYO had earlier also filed other criminal cases under Sections 379, 414, 420 and 120B of IPC and other implications under IT and Copyright Acts with the Economic Offences Wing and Cybercrime department against senior employees of Zostel for stealing data and other assets including laptops, which Oyo claims continue to be under Zostel's access even now and are being used to its benefit.
“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 Gurgaon court on February 2, 2018, making false allegations against OYO including but not limited to allegations around various hotel, employee and consumer assets transfer. These allegations relate to a long expired and non-binding term sheet,” an Oyo spokesperson said in a statement.
Oyo further claims that it is absolutely false to suggest that OYO benefited from talks on the deal since the Zo business had been faltering at that stage. The company says that there was also no response to a list of issues identified during Oyo’s diligence process, including significant liabilities and unpaid dues as well as undisclosed contingent liabilities.
“Getting into a deal with this background would have been harmful for 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,” the spokesperson added.
Zostel Hospitality was founded in 2013 by Dharamveer Chouhan, Akhil Malik, Paavan Nanda, Tarun Tiwari, Chetan Singh Chauhan, Abhishek Bhutra and Siddharth Janghu. While it initially opened and ran hostels across popular tourist destinations such as Jaipur, Gokarna, Udaipur, it entered into the budget hotel space with Zo Rooms in December 2014 and expanded to 51 cities by late-2015.
Reports of the Oyo-Zo deal facing hurdles surfaced within days following which Zo Rooms pulled down its website around February 2016. But this only strengthened rumours of the merger.
Oyo said in its statement that while Zostel claimed to have been keen on going through with the deal, it shut down Zo Rooms’ website and the app without any prior notice to customers or to Oyo. This made it impossible for Zostel to make any customer migration, leave alone a smooth business transfer which was key to the deal discussion, it says.
Oyo further added that the formal civil proceedings filed by Zostel against Oyo actually come as a relief to it as this will bring the complete matter in front of the honourable court.
Oyo will oppose and contest all claims made by Zostel, claiming that Zostel does not have any justifiable and valid claim against Oyo. “We have full faith in the courts of law and believe that it will take the right decision and justice will be delivered,” the spokesperson said.