IPO-bound OYO hits back at Zostel, writes to SEBI alleging the deal was terminated

In yet another twist in OYO-Zostel's legal battle saga, the hospitality unicorn has written a letter to the Securities Exchange Board of India (SEBI) stating that the non-binding agreement between the two parties was terminated due to various issues, including non-completion of due-diligence. OYO in its 119-page letter to the market regulator, a copy of which was reviewed by BusinessToday.In, stated that "no transfer of assets took place from Zostel to OYO" quoting its financial statements after the non-binding agreement was signed. OYO has said that the Zostel group has continued its operations and still had a huge set of assets.

Softbank-backed OYO has said that the non-binding term sheet was terminated by Zostel pursuant to email dated September 17, 2016 and agreed to by the company pursuant to email dated September 19, 2016. "Both parties commenced negotiations on new terms, which were never finalised. Copies of the emails dated September 17, 2016 and September 19, 2016 are annexed herewith as Annexures R-6 and R-7, respectively," it added.

Zostel, on the other hand, has been alleging during the court proceedings that the transfer of assets took place after the term sheet was signed, which made it mandatory for OYO to execute the contract.

"At the outset, we deny in toto all the allegations leveled against us by you in the complaint. The complaint is replete with patently false statements and self-serving truths. And is a deplorable attempt to adversely impact the proposed offer and coerce the company into granting Zostel's shareholders an entitlement into the company that they failed to obtain in the arbitration proceedings," the letter from OYO stated.

It has also detailed at least 16 assets that were not transferred as a part of the contract, adding that during the arbitration proceedings, Zostel failed to provide any evidence.

Zostel has claimed that the award was in its favour, and has asked OYO to execute the contract. Zostel has also been demanding 7 per cent stake in the parent entity of OYO, Oravel Stays, to Zostel's shareholders, which, according to the latter, was agreed upon in the contract.

The two companies are fighting a bitter battle in the Delhi High Court at a time when OYO is headed for $1.2 billion IPO and has filed its Draft Red herring Prospectus (DRHP) with SEBI.

Zostel has sought suspension of the IPO alleging that any alteration in shareholding will be in violation of the contract signed and the arbitration award.

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