It's not just Zostel, OYO has 20 other lawsuits to fight

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It's not just Zostel, OYO has 20 other lawsuits to fight
OYO
  • OYO has 21 cases registered against the company, subsidiaries, directors and promoters.
  • The company has spent nearly ₹1,166 crore as legal and professional fees in the last three financial years.
  • It also estimates that any adverse outcome in legal proceedings involving Zostel, may adversely impact their business.
The extensive list of lawsuits against hotel and hospitality giant OYO is no secret. As the company has grown, so have the cases being filed against it. And the company does not expect this number to go down any sooner.

OYO — in its draft red herring prospectus (DRHP) for the $1.2 billion initial public offering (IPO) — had noted that the number of legal disputes and proceedings against the company may continue to increase as the company scales further.

It is important to note that OYO has 21 cases registered against it, its subsidiaries, its directors and promoters.

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This includes the petition filed by Federation of Hotels and Restaurants Association of India (FHRAI) in front of Competition Commission of India (CCI) against MakeMyTrip, Goibibo and OYO for dominating online travel agents (OTA) market. Treebo Hotels has raised similar allegations against the company.

As per the DRHP, the company has spent nearly ₹1,166 crore as legal and professional fees in the last three financial years.

YearLegal and professional fee
FY2019₹226 crore
FY2020₹618.6 crore
FY2021₹322.9 crore
Source: OYO’s DRHP

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"The number and significance of these claims, disputes, and proceedings have increased as our Company has grown larger, the number of bookings on our platform has increased, our brand awareness has increased and the scope and complexity of our business have expanded, and we expect that the number and significance of such claims, disputes and proceedings will continue to increase," OYO’s DRHP revealed.

The filing also noted that there are no outstanding litigation proceedings involving any OYO group companies that “have a material impact on our company”.

The battle with Zostel is not a simple one either

One of the biggest ongoing legal battles OYO is fighting at the moment is the one with Zostel Hospitality, which has reached out to India’s market regulator Securities and Exchange Board of India (SEBI) to reject OYO’s IPO. The company has reportedly called OYO’s IPO as “illegal”.
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OYO was in talks for a merger with Zo Rooms, a subsidiary of Zostel Hospitality, back in 2015, but the talks fell through. This eventually led to arbitration between the two companies. A Supreme Court-appointed arbitrator had found OYO to be in breach of the agreement, which made Zostel eligible for a 7% stake in OYO’s parent company Oravel Stays.

OYO challenged the award before the Delhi High Court earlier this year. The case is currently ongoing at the Delhi High Court.

“Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition,” OYO says in its DRHP.
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Last month before OYO filed its DRHP, Zo Rooms moved a fresh petition to the high court in order to restrain OYO from modifying its shareholding pattern, which would prevent the company from raising any more capital and even halt its IPO.

OYO — which earlier accused Zostel of forum hunting — has condemned Zostel’s move to approach SEBI, saying that the company is attempting to overreach the ongoing Delhi high court proceedings. "After multiple attempts in the courts and arbitration tribunal, Zostel’s communication shows unnecessary and repetitive efforts to create a wrong perception," an OYO spokesperson told Business Insider.

The company has reiterated that the talks between Zo Rooms and OYO were in exploratory discussions and “no definitive agreements” were finalised. It added that the award of the Supreme Court appointed arbitrator did not direct OYO to issue any shareholdings to Zostel.
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“Nothing in the award prevents or restrains OYO from going ahead with the same," OYO’s legal counsel said.

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