Adverse ruling in Zostel case could force transfer of up to 7 pc stake, shows OYO parent Prism's DRHP
Mumbai, July 1
Prism, the parent company of OYO, has flagged its ongoing legal battle with Zostel as a key risk in its draft red herring prospectus filed ahead of its proposed initial public offering.
In the DRHP, the company said that any adverse outcome in the legal proceedings involving Zostel may materially and adversely affect its business, reputation, prospects, results of operations and financial condition.
It also warned that an unfavorable final decision could result in the issuance or transfer of up to 7 per cent of its shareholding, or the payment of an equivalent monetary value, to Zostel and certain other parties.
"Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our
business, reputation, prospects, results of operation and financial condition, including potential issuance or transfer of up to 7 per cent of our shareholding," it said in its draft paper.
The dispute stems from a non-binding term sheet signed between Prism, Zostel Hospitality Private Limited (Zostel) and certain other parties for the potential acquisition of Zostel's business by Prism.
According to the DRHP, the proposed transaction did not materialise as Zostel claimed it had fulfilled all its obligations under the term sheet, while alleging that Prism failed to complete the acquisition process.
Prism, however, has disputed these claims, maintaining that the term sheet was exploratory and non-binding in nature. The company said no definitive agreements were executed, several commercial terms remained unresolved, and no part of Zostel's business was ever transferred to Prism.
The company further disclosed that an arbitral tribunal had ruled that the term sheet was binding. Prism challenged the award before the Delhi High Court, which set aside the arbitral award after holding that it was in conflict with the public policy of India.
Following the High Court's decision, Zostel filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 before a Division Bench of the Delhi High Court. The matter remains pending.
Prism said that if Zostel ultimately succeeds through a non-appealable court order, the company could be directed to issue or transfer up to 7% of its shareholding, or pay an equivalent monetary value, in accordance with the court's directions.
— IANS
Reader Comments
As an investor, this is concerning. If I'm putting money into the IPO, I want to know the legal risks are settled. The High Court already ruled in OYO's favor, but the appeal is still pending. Hope the Supreme Court doesn't get involved - Indian courts can drag cases for years! 😕
Honestly, both parties seem at fault here. Zostel should have been more careful with a 'non-binding' term sheet, and OYO should have been clearer about their intentions. This is why we need better contract law awareness in India's startup ecosystem. 🙄
Everyone is blaming OYO but let's not forget - the Delhi High Court already said the term sheet was non-binding! The arbitral tribunal got it wrong. Zostel is just trying to cash in on OYO's IPO success. Typical Indian business tactic - wait for the other guy to get big, then sue. 🎯
7% stake? That's massive! OYO is valued at around $10 billion, so we're talking $700 million potentially. This is a serious risk for retail investors who just see the flashy IPO ads. The DRHP disclosure is good, but how many people actually read these documents? 📉
As a small investor who bought OYO shares through unlisted markets, I'm really worried now. This legal battle could delay the IPO or worse - reduce the valuation. Indian startups need to learn from this: don't cut corners during growth, it always comes back in the end. 🙏
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