From Human Trafficking Case To Feud With Zostel: A Look At PRISM’s Legal Battles

After filing its updated draft red herring prospectus (UDRHP) with the SEBI, OYO-parent PRISM has set its sight to list on the Indian equities market for the third time. 

In its third IPO attempt, the Ritesh Agarwal-led company is looking at raising ₹6,650 Cr from the public markets while none of its existing shareholders are looking to offload any stake in the company. A large chunk of the fresh proceeds will help the company repay or prepay certain borrowings.

The company has made significant strides in its financial performance since its last DRHP filing, posting a net profit of ₹748.3 Cr for the first nine months (9M) of FY26. 

However, a closer look at the UDRHP brings to attention an extensive list of legal battles that the company is facing in the run up to its listings.

At the centre of those disclosures is the decade-old dispute with Zostel that complicated OYO’s previous IPO attempt. The draft IPO papers also detail a trafficking-related FIR in Uttar Pradesh, multiple human trafficking lawsuits in the United States following G6 Hospitality acquisition , an antitrust penalty imposed by the Competition Commission of India (CCI) and a promoter-level tax dispute running into nearly ₹16,900 Cr.

Let’s delve into some of the key legal troubles PRISM is facing in the run up to its IPO.

The Zostel Dispute 

OYO’s dispute with Zostel, which dates back to 2015, started when the former signed what it described as a non-binding term sheet to acquire parts of Zostel’s business. The deal never materialised and OYO has since maintained that no definitive agreement was executed and key commercial terms remained unresolved.

After arbitration, a 2021 award held that the term sheet had become binding by conduct but stopped short of directing OYO to transfer shares or pay damages. OYO challenged the award, and in May 2025, the Delhi High Court set it aside, ruling that it conflicted with Indian public policy and that specific performance could not be granted for an incomplete commercial arrangement.

What’s fresh is that Zostel withdrew its challenge before the Supreme Court in July 2025 and instead filed a fresh appeal before the Delhi High Court under the Arbitration Act, which remains pending. 

In March 2026, the Delhi High Court also allowed OYO’s subsidiary, OYO Hotels and Homes Private Limited (OHHPL), to be removed from the proceedings.

Despite the favourable ruling, OYO says the dispute remains a material risk. If Zostel ultimately succeeds after all appeals are exhausted, the company could be required to transfer up to 7% of its shareholding or pay the equivalent value in cash.

“We cannot assure you that we will not receive any adverse order or claim in the future or that such claims will not have a material adverse impact on us, our financial condition and/or shareholding structure and also in such case, our management’s time and attention and our company’s resources may be diverted,” the DRHP read.

Separately, another dispute over confidential information remains unresolved. OYO has accused former employees of colluding with Zostel to leak proprietary information, while Zostel alleges OYO improperly accessed its confidential data through former employees.

Human Trafficking Litigation In The United States

Following PRISM’s acquisition of G6 Hospitality, the parent of Motel 6 and Studio 6, the company inherited a plethora of legal suites involving its franchise motel properties across the US, with human trafficking emerging as a recurring theme.

One lawsuit, filed in the District Court of Harris County, Texas, involves a woman, identified as Jane Doe, suing OYO Hotels Inc and the owner of a Houston motel on behalf of her minor daughter. The complaint alleges negligence and public nuisance arising from human trafficking at the property and seeks damages exceeding ₹816.4 Cr.

OYO has denied responsibility for the motel’s day-to-day operations, arguing that it was independently owned and managed by the franchisee. It has also cited contractual provisions requiring the hotel owner to indemnify and defend the company.

According to the prospectus, the hotel owner has accepted that obligation and appointed legal counsel, while OYO’s insurer has agreed in principle to fund defence costs. The litigation, however, remains in the discovery stage.

The challenge stems from Motel 6’s franchise model. While franchisees own and operate the hotels, plaintiffs increasingly seek to hold the franchisor liable, arguing it prescribes operating standards, benefits commercially from the properties and fails to detect or prevent illegal activities.

PRISM says franchise agreements require hotel owners to indemnify the company. However, the DRHP also notes that insurance coverage is not always available, with some insurers denying claims under exclusions relating to assault, sexual misconduct and human trafficking, potentially increasing the IPO-bound company’s exposure.

OYO’s Legal Troubles In Europe

The hospitality major has disclosed multiple legal proceedings involving its overseas subsidiaries, including a €2.15 Mn consultancy fee dispute in France and an arbitration in the UK.

According to the UDRHP, OYO Hotels Netherlands B.V. has appealed a French court order directing it to pay consultancy firm Rochefort & Associés €2.15 Mn, excluding taxes, along with late-payment interest and €15,000 in legal costs.

The dispute stems from a June 2024 engagement under which Rochefort was appointed to advise OYO on the proposed acquisition of K&J Consulting SAS (CheckMyGuest). OYO challenged the claim, alleging deficiencies in the services rendered and questioning the jurisdiction of the summary court. However, a French tribunal ruled against the company in October 2025.

OYO said the Court of Appeals has stayed enforcement of the order, subject to the company depositing the disputed amount, interest and legal costs. The appeal remains pending.

Separately, OYO Technology and Hospitality (UK) Limited is involved in arbitration proceedings initiated by Care Property Management Limited over a services agreement signed in 2019. While the claimant initially sought approximately £2.62 Mn, it reduced its claim to about £1.16 Mn in its final submissions filed in May 2026. The arbitral award is awaited.

The filing also disclosed insolvency proceedings involving Belgian subsidiary Lugos B.V. over unpaid social security contributions of €81,175.95. OYO said the payment default occurred during a management transition despite funds having been remitted by its Dutch parent company. It added that the proceedings relate to a non-material subsidiary and are not expected to have a material impact on its European business.

The company also disclosed an employment-related appeal involving a Spanish subsidiary, where proceedings remain pending.

Promoter Tax Dispute

The company disclosed that a long-running tax dispute involving its investor and promoter entity, SoftBank Vision Fund (SVF), remains pending before the Board for Advance Rulings (BAR).

According to the papers, SVF India Holdings (Cayman) Limited had approached the BAR in November 2019 seeking clarity on the Indian tax treatment of its acquisition of shares and securities of OYO’s parent entity, Oravel Stays Ltd, from another SoftBank group entity during FY19.

The application was admitted by the tax authority in May 2024 and is yet to be finally adjudicated.

Pending the outcome of the proceedings, SoftBank deposited income tax amounting to ₹1,689.53 Cr with the Government of India. Subsequently, the investor received an interim refund of ₹622.65 Cr from the Indian tax authorities, while the balance amount continues to remain under dispute.

The filing does not specify the exact tax issue under consideration but states that the matter relates to the tax treatment of the intra-group share acquisition undertaken by SoftBank.

CCI’s Anti Competition Penalty  

The company’ s appeal against the CCI’s ₹168.88 Cr penalty over its commercial arrangement with MakeMyTrip-Goibibo (MMT-Go) remains pending before the National Company Law Appellate Tribunal (NCLAT).

The case dates back to 2019, when the Federation of Hotel and Restaurant Associations of India (FHRAI) approached the CCI alleging that the agreement between OYO and MMT-Go was anti-competitive. Subsequently, budget hotel chains FabHotels and Treebo also filed similar complaints, alleging that MMT-Go had delisted their properties after entering into a partnership with OYO, thereby restricting competition in the online hotel booking market.

Following an investigation by the CCI’s Director General, in October 2022, imposed a penalty of ₹168.88 Cr on OYO and ₹223.48 Cr on MakeMyTrip-Goibibo. The CCI held that the arrangement between the parties led to the foreclosure of competition by creating an artificial advantage for OYO and limiting the ability of rival hotel chains to access MMT-Go’s platform.

OYO challenged the order before the NCLAT in November 2022, seeking to set aside the CCI’s findings and withdraw the penalty. The company has argued that its agreement with MMT-Go did not foreclose competition or cause any appreciable adverse effect on competition under the Competition Act, 2002. It has also contended that the penalty was computed without considering the relevant turnover.

The company said the appeal continues to be pending before the appellate tribunal, making the antitrust case one of the material legal proceedings disclosed in its filing.

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