OYO reportedly invokes ‘Act of God’ clause to suspend payments to hotel owners says report

  • OYO is suspending payments to hotel owners, citing the ‘force majeure’ clause, according to an ET report.
  • OYO in a letter to hoteliers has ‘proposed a revenue share model that supersedes the existing agreement’ where the company will be taking a 10% share on the net revenue of the hotel.
  • The Ritesh Agarwal-led hotel chain has been subject to a lot of trouble since late last year, where hoteliers have raised legal issues about OYO not paying up hotel owners on time.
A day after OYO announced a Covid-19 welfare fund for hotel partners, it is known to be suspending payments to hotel owners, citing the ‘force majeure’ clause. OYO had earlier brought hotels under its wing with the promise of a ‘minimum guarantee’ amount. But that will not be paid anymore due to the sharp drop in bookings due to the pandemic, as per an ET report.

According to the report, OYO in a letter to hoteliers has ‘proposed a revenue share model that supersedes the existing agreement’ where the company will be taking a 10% share on the net revenue of the hotel.

However, a source told Business Insider that this clause is applicable only to the properties who had been signed under the ‘minimum guarantee’ deal of OYO, and hence does not cover “all their properties”.

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A lot of troubles have been brewing at the hotel chain since late last year, where hoteliers raised issues about OYO not paying hotel owners on time.

The ‘Act of God’ clause

Force majeure which in French means superior force, comes under the Indian Contract Act and protects a party from liability for its failure to perform a contractual obligation. It is popularly known as the ‘Act of God’ clause which covers unexpected events like the Covid-19 pandemic that can stop people from fulfilling their obligations.

“The intention of a force majeure clause is to save the performing party from consequences of something over which it has no control,” said a report by law firm Cyril Amarchand Mangaldas.
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However, hoteliers have said that their contracts never did have a force majeure clause. Interestingly, the CAM report states that if the contract does not have a force majeure clause, a company could then go for the doctrine of frustration under Section 56 of the Indian Contract Act, 1872.

“However, in order to claim that the contract is frustrated, it must be shown that performance of the contract is entirely impossible and that it has become fundamentally different from the arrangement contemplated at the time of executing the contract,” said the CAM report.

Welfare fund and pay cuts
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Ironically, OYO yesterday (April 2) announced that it has set up a welfare fund the proceeds of which will be used for the benefit and welfare of the employees at OYO properties, asset partners and staff members impacted by the COVID-19 pandemic.

OYO founder Ritesh Agarwal also announced that he will not take any salary for the rest of the year, while the leadership team at OYO is voluntarily taking a 25% pay cut.

“Given the current business situation, which is unprecedented for our industry globally, I am foregoing 100% of my salary for the rest of the year. I am grateful to my leadership team that has also taken pay cuts and supports the company during these tough times,” said Agarwal.
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