Delhi HC sets aside arbitral tribunal order entitling Zostel stake in OYO

The court allowed OYO's plea under Section 34 of the Arbitration Act, setting aside the 2021 tribunal ruling that Zostel could seek up to 7% stake in Oravel Stays

The Delhi High Court on Tuesday set aside an arbitral award that had entitled Zostel to up to a 7 per cent stake in Oravel Stays, the parent company of OYO.

 

A single-judge Bench of Justice Sachin Datta passed the order in response to a petition filed by OYO under Section 34 of the Arbitration and Conciliation Act, 1996. Section 34 outlines the procedure for challenging an arbitral award in court.

 

The arbitral award, passed on 6 March 2021, had ruled that Zostel was entitled to specific performance of OYO’s obligations under a term sheet but did not direct the allotment of shares. However, the tribunal had allowed Zostel to pursue proceedings for the execution of definitive agreements. It found that OYO had breached a binding agreement after acquiring Zostel Hospitality, which owned ZO Rooms.

 

According to the agreement, OYO had agreed to transfer a 7 per cent stake to ZO Rooms’ shareholders, the tribunal had observed.

 

Oravel Stays and Zostel Hospitality — then rivals in the hospitality sector — were engaged in a legal dispute over a proposed acquisition. Zostel alleged that OYO failed to transfer the agreed stake. It later raised objections to OYO’s draft red herring prospectus (DRHP) for its proposed IPO, citing the pending shareholding issue.

 

OYO, in response, denied all allegations and stated that the deal was terminated by mutual consent.

 

Following the tribunal’s ruling, Zostel approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking to restrain OYO from altering its shareholding — including through the proposed IPO — on the grounds that it would frustrate enforcement of the arbitral award.