OYO blames Zo Rooms for ‘forum hunting’ after Zostel’s latest plea to stop its IPO

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OYO blames Zo Rooms for ‘forum hunting’ after Zostel’s latest plea to stop its IPO
Canva/BI India
  • Zo Rooms has moved a petition to restrain OYO from modifying its shareholding pattern.
  • OYO was in talks for a merger with Zo Rooms in 2015, but the talks fell through.
  • Zo Room’s legal counsel adds that any issuer should not be eligible to make an IPO if there are any outstanding convertible securities.
  • OYO has condemned Zo Rooms for misrepresentation of facts and moving to multiple forums.
Update: The article has been updated to include the Delhi high court's verdict issued on September 29.

Hotel and hospitality firm OYO is reportedly all set to hit its next milestone this week, by filing the preliminary paperwork for its upcoming initial public offering (IPO). However, it has found itself in the middle of another legal battle before it takes a step ahead.

Hotel rooms aggregator Zo Rooms, which is managed by Zostel Hospitality, has moved a new petition to the Delhi High Court in order to restrain OYO from modifying its shareholding pattern. This petition has been filed to restrict the hotel and hospitality giant from raising any more capital and eventually put a stop on its public issue.

"An issuer shall not be eligible to make an initial public offer if there are any outstanding convertible securities or any other right, which would entitle any person with any option to receive equity shares of the issuer...,” Zo Rooms’ legal counsel TMT Law Practice said, in a conversation with The Economic Times.
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They added that OYO should not be allowed to file draft red herring prospectus (DRHP) till this matter is resolved.

OYO may postpone its DRHP by a week, as per The Economic Times report.

Court adjourns matter until next month

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The Delhi high court on September 29 (Wednesday) adjourned the hearing in the OYO-Zo Rooms case to October 7. It has asked ZO Rooms to submit a rejoinder on the record.

Amit Sibal who was appearing on behalf of Zo Rooms, requested that their shares should be preserved till next hearing date. Sibal added that Zo Rooms intention was not to stop OYO's IPO.

"Now if they go ahead and conduct the initial public offering then these shares will be no longer available for allotment to me in that eventuality. Therefore I was seeking that there be protection that if I succeed and they do not succeed in their objections to the award then at least my ability to have those shares is preserved," said Sibal.

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The court categorically denied this, saying that this couldn't be done without hearing the "contested matter".

OYO condemns Zostel for ‘misrepresenting’ facts

An OYO spokesperson told Business Insider, “OYO deplores Zostel’s repeated attempts at misrepresenting case facts and threats of forum hunting. OYO condemns Zostel’s self-serving misrepresentation of case facts to the media and it is an attempt to overreach Delhi HC [Delhi High Court] proceedings.”

The hotel and hospitality giant further added that Zostel’s claims are “baseless” and termed it “forum hunting”. The term “forum hunting” or “bench hunting” is usually used when a particular petitioner goes to a specific judge or court in the hope of a favourable verdict.
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Meanwhile OYO’s legal counsel added that the petition filed by Zostel seeks relief “beyond the scope of award”. The award does not provide any relief that entitles them to “freeze” OYO’s shareholding pattern, the counsel said, while adding that the case does not merit.

Business Insider has reached out to Zostel and the story will be updated with responses, if any.

The ongoing battle

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The Delhi high heard the petition on September 29. The court also took up a plea by OYO to grant stay on an earlier order from the Supreme Court of India appointed arbitrator in breach of its agreement with Zo Rooms.

OYO was in talks for a merger with Zo Rooms in 2015, but the talks fell through. This eventually led to arbitration between the two companies. Zo, citing the arbitrator's order, previously noted it is eligible for a 7% stake in OYO’s parent company Oravel Stays. In that case, Zo Rooms may be eligible for a stake worth $672 million in OYO, which is now worth $9.6 billion.

OYO, however, has reiterated that the entire process of acquisition was merely at the stage of exploratory discussions and no definitive agreements were finalised between the two parties.

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