Zo Rooms to seek interim injunction to prevent OYO from proceeding with $1.2 billion IPO

Hospitality unicorn OYO’s plans to list on stock exchanges may face a roadblock with a smaller rival Zo Rooms seeking interim injunction to prevent OYO from proceeding with its $1.2 billion IPO. The matter is listed before the Delhi High Court on October 7.

A Zo Rooms (Zostel) spokesperson told Business Today that the company will seek interim injunction from the court on any proposed plans of OYO which may alter the shareholding pattern of the company, in order to safeguard its own rights.

"We are also seeking to enforce the arbitration award by a single-member tribunal, which was appointed by the Supreme Court, and which held that Zo Rooms should be allotted the equity shares as agreed upon in the term sheet, irrespective of whether the preamble is binding/ non-binding," Abhishek Malhotra, Managing Partner, TMT Law Practice, which is representing Zo Rooms, said.

He added that the company is also planning to approach markets regulator Securities Exchange Board of India (SEBI) to present its plea.

The issue pertains to a 2015 proposed deal for Zo Room’s acquisition of OYO, resulting in a transfer of 7 per cent stake of the Ritesh Agarwal-led firm to Zo Rooms. The deal was not implemented after a minority investor in OYO objected to the buyout.

Also Read: Oyo’s IPO Prospectus: All you must know about company financials, future plans

However, Zo Rooms alleged that after signing the term sheet in November 2016, OYO sent a series of documents to it, agreeing upon the conditions of the contract, asking for details of employees and operations and finally not signing a definitive agreement.

OYO, which had earlier approached the Delhi HC challenging the arbitration award, has maintained that there was no transfer of assets between the companies, no definitive agreement was signed and that the hospitality chain backed out of the deal after carrying out due diligence.

What do the legal experts say?

Even as the single-member tribunal had in March 2021 said that Zo Rooms has a right to seek execution of the definitive agreement and go ahead with the legal proceedings, it did not grant damages/ compensation as demanded by the company.

A top lawyer aware of the proceedings told Business Today that the court will now have to carefully review the provisions of the term sheet in order to decide the enforceability of the award.

"There is basically a thin line of demarcation in the term sheets, which also includes the rights of both the parties involved. The court will have to directly see if the rights are violated at all by not going ahead with the deal," he added.

Also Read: HDFC Mutual Fund files documents for 9 Exchange Traded Funds