Zostel Withdraws Fresh Plea Against OYO, Next Hearing In August

Budget hostel chain Zostel has withdrawn an urgent application it had filed with the Delhi High Court seeking protection for a 7% stake it has claimed in IPO-bound PRISM, the parent company of hospitality chain OYO.

Zostel had argued that 7% of OYO’s total share capital be escrowed or it be provided equivalent security until the time the dispute between both parties is over as its appeal would be rendered meaningless once PRISM dilutes its shareholding and lists on the bourses.

The fresh plea was filed by Zostel after OYO filed its updated DRHP with SEBI last month to raise ₹6,650 Cr through a fresh issue of shares. The court dismissed the application as “not pursued” in view of its March 2022 order.

At the heart of the decade-long dispute is an agreement signed between the companies in 2015 as per which OYO was to acquire Zostel’s budget hotel business Zo Rooms in return for a share of its equity. Zostel says that the agreement made it entitled to a 7% stake in OYO, which in turn has held that the agreement was non-binding and the conditions under it were never met.

At the time, the Ritesh Agarwal-led company said that both companies mutually agreed to terminate the non-binding term sheet due to issues including non-completion of the due diligence process and transaction structuring by Zostel.

In March 2021, an arbitral tribunal headed by former Chief Justice of India (CJI) Aziz Mushabber Ahmadi noted that OYO acted in breach of the binding agreement and allowed Zostel to pursue appropriate proceedings for execution of the definitive agreements.

Subsequently, Zostel filed a plea before the Delhi HC in 2022 to restrain OYO from altering its shareholding, including via its proposed IPO, saying that any such process would “frustrate enforcement of the arbitral award”.

In March 2022, a division bench of the Delhi High Court noted that OYO would be liable to transfer 7% of its equity to Zostel if the arbitral award goes through.

Following this, the Delhi High Court, in May 2025, allowed OYO’s challenge and set aside Zostel’s 2021 arbitral award, ruling that the underlying term sheet was non-binding and that protection of the 7% equity can’t be granted.

Zostel has appealed that judgment, which remains pending before a division bench and is scheduled for hearing on August 12.

“OYO accepted the binding effect of the Court’s order dated 14.03.2022, reaffirming that it shall transfer 7% equity in OYO (or the equivalent value thereof) to Zostel upon Zostel succeeding in the pending appeal. The Division Bench has listed the appeal for hearing on 12.08.2026. The proceedings mark a significant reaffirmation of Zostel’s continuing rights, which are now set for adjudication on merits,” a Zostel spokesperson said on the latest development.

Following PRISM’s IPO filing, Zostel asked SEBI for a higher scrutiny of the IPO disclosures. Zostel said that investors should be informed that the claim, if upheld, could result in the issuance of up to 7% of OYO’s equity or payment of its equivalent value.

“The Delhi High Court has rejected Zostel’s fresh petition on July 8. This is their ninth unfruitful judicial attempt. It is also significant that during the recent court proceedings, Zostel’s counsel himself clarified that they do not seek to obstruct the IPO process while claiming protection of their alleged rights. Additionally, we have reviewed the reports regarding Zostel’s representation before SEBI. It is unfortunate that, despite repeated judicial findings in favor of PRISM/OYO, attempts are being made to revive claims that have already been rejected after substantial adjudication,” said Manish Dhir, founder of Chestlaw, Advocates & Solicitors on the case.

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