Zostel Withdraws Delhi HC Plea Seeking SEBI Review Of OYO’s IPO Disclosures

Budget hostel chain Zostel has withdrawn its plea seeking directions from the Delhi High Court (HC) to the Securities and Exchange Board of India (SEBI) to examine disclosures made by hospitality major PRISM in its draft IPO papers, particularly those relating to Zostel’s claimed 7% stake in the OYO parent.

In a statement shared with Inc42, Zostel said it withdrew the application after the HC observed that its concerns regarding the IPO disclosures would be considered by SEBI in any case, given that the draft papers are yet to receive regulatory approval.

“Zostel’s rights and remedies remain fully reserved and unaffected. The substantive dispute between Zostel and OYO continues to remain pending before the Hon’ble High Court, and Zostel remains confident of its case on merits,” the company said.

Granting Zostel the liberty to reapproach the court, the HC declined to issue any directions to SEBI, noting that the regulator would examine the matter in accordance with law.

Responding to the development, PRISM said it remained confident of its legal positioning in the case against Zostel. 

“Despite its previous counsel informing the Court that legal fees remained unpaid, Zostel has continued to file fresh applications seeking overlapping protections. We have consistently maintained that these applications are frivolous and not maintainable,” a PRISM spokesperson said.

The dispute between OYO and Zostel dates back to 2015, when OYO signed what it described as a non-binding term sheet to acquire parts of Zostel’s business. The transaction never materialised, with OYO maintaining that no definitive agreement was executed and that key commercial terms remained unresolved.

In 2021, an arbitral tribunal held that the term sheet had become binding through the conduct of the parties. However, it did not direct OYO to transfer shares or pay damages. OYO subsequently challenged the award, and in May 2025, the Delhi HC set it aside, holding that it was contrary to Indian public policy and that specific performance could not be granted for an incomplete commercial arrangement.

Zostel later withdrew its challenge before the Supreme Court in July 2025 and filed a fresh appeal before the Delhi HC under the Arbitration and Conciliation Act. The matter remains pending.

The dispute resurfaced after OYO confidentially filed its IPO papers in December 2025. Zostel then sought directions to escrow 7% of OYO’s equity shares and urged SEBI to closely scrutinise the company’s IPO disclosures.

PRISM filed its updated DRHP in June this year. The ₹6,650 Cr public issue, comprising entirely a fresh issue of shares, is aimed at repaying or prepaying certain borrowings and supporting the company’s growth initiatives.

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