The legal battle between Oyo and Zostel-owned Zo Rooms has now reached the Supreme Court. After the Delhi High Court and a Gurgaon Court adjudicated the case filed by Zostel, the hospitality firm moved the Supreme Court, which has now appointed an arbitrator.
Zostel had filed an arbitration petition in the District Court of Gurugram against Oyo, which was declined on the grounds of lack of jurisdiction on February 23, following which Zostel approached the Supreme Court.
A three-judge bench comprising outgoing Chief Justice of India Dipak Misra, Justice AM Khanwilkar and Justice DY Chandrachud heard the matter and appointed Justice AM Ahmadi, former Chief Justice of India, as the sole arbitrator in the matter.
“…Respondent no. 1 (Oyo) had filed a suit seeking damages and other reliefs and no steps were taken by the petitioner (Zostel) for stay of the suit. On a query being made, we have been apprised that the suit has been filed seeking injunction from the Civil Court for restraining the petitioner from making any defamatory statement affecting the goodwill of the respondents and for grant of damages. In our considered opinion, in such a suit, even if an application under Section 8 of the Act would have been moved, no stay could have been granted. On a scan of the arbitration clause, there can be no doubt that a clause of arbitration exists between the parties in the Term Sheet. Whether the claims are arbitrable or not, is within the domain of the arbitration,” the Supreme Court order dated September 19 states.
As per the SC order, the arbitrator will hold the sittings at New Delhi.
“We are pleased to share that the Hon’ble Supreme Court has now appointed an arbitrator in this case, setting the stage for the closure of this matter where OYO is prepared fully to defend these baseless claims,” Oyo said in a statement on the SC order.
“Please note, the arbitration proceedings will not have any bearing on the other suits that have been filed by OYO against Zostel. We are confident that as in the past we will be able to defend our position before the honorable arbitrator successfully and prove that these claims are unfounded,” it added.
Zostel, in a statement, said that it is relieved to get a forum to present all the facts and data related to the entire business transfer of Zo (its employees, properties, bookings, IP & data) to Oyo.
“Also, for what was touted as a Non-Binding Term Sheet under the garb of which OYO had been resiling from the promised contractual terms, the Supreme Court Bench has observed in its judgment that a binding arbitration clause exists between the two parties as per the Term Sheet post which the entire business transfer of ZO took place… We strongly believe in Justice Ahmadi's most sought-after guidance and experience in arbitration matters. Justice will prevail and the aggrieved will get its dues – no matter how many frivolous cases and other harassment tactics are used to muzzle our voice,” Zostel said in a statement.
Oyo-Zo battle background
The issue between Oyo and Zostel dates back to 2015, when Oyo initiated talks to acquire Zostel’s budget hotel segment, Zo Rooms.
In November 2015, both parties signed off a Term Sheet with Oyo to acquire Zo’s business in return for a 7% ownership in Oyo. As per the Term Sheet, the founder will also be entitled a payout of $1 million on closure of the deal. This was approved by investors on both sides.
However, in September 2016, Oyo terminated the deal claiming that it didn’t identify potential value in Zo’s business.
Zostel alleges that Oyo Rooms acquired Zo’s partner hotels across all cities, its employees, the entire customer data, future bookings, analytics, access and passwords. It further claimed that three months since the term sheet was signed, every team member of Zo Rooms worked with Oyo’s team in different cities to transfer every inch of the business.
Oyo also filed other criminal cases earlier under Sections 379, 414, 420 and 120B of the 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 are still under Zostel’s possession.
On February 2, 2018, Zostel filed a petition in the Gurgaon District Court alleging that Oyo acquired its data of employees, assets and hotel properties as part of due diligence and was refusing to pay the dues for the business acquired.
Zostel claimed that with reports of SoftBank announcing its acquisition all across the media and final agreements on the table for signatures, in February 2016, Oyo requested for a slight delay in share allocation owing to some internal investor issues. This, it claims was after it made Zo buy stamp papers to allocate shares.
In October 2017, Oyo declined to issue Zo 7% shares of Oyo as per the deal. Zostel claims that the business had been acquired 1.5 years ago by Oyo.
However, Oyo on its part claims that Zostel was not meeting its obligations to clear significant dues from vendors and owners, which was needed to move the deal forward. Oyo has further claimed in statements earlier that it is absolutely false to suggest that it benefited from talks on the deal since the Zo business had been faltering at that stage.