Zostel files appeal in Delhi High Court against quashing of arbitral award in dispute with OYO

Zostel Hospitality (which owns ZO Rooms) has filed an appeal before a Division Bench of the Delhi High Court, challenging a single-judge's decision to set aside an arbitral award entitling ZO Rooms to a 7 per cent stake in Oravel Stays (parent company of OYO) [Zostel Hospitality Private Ltd Vs Oravel Stays Private Limited & Anr.]..A Division Bench of Justice Nitin Wasudeo Sambre and Justice Anish Dayal on August 12 sought OYO's response to Zostel's appeal and will hear the matter next on October 9. .The arbitral award in focus had ruled that OYO had acted in breach of a binding agreement after its acquisition of rival Zostel.By a 2015 deal, OYO had proposed to acquire Zostel’s hotel business. In return, Zostel’s shareholders were to receive a 7 per cent equity stake in OYO. While the term sheet was labelled non-binding except for clauses related to confidentiality, exclusivity and dispute resolution, it outlined key transactional steps including the transfer of assets and execution of definitive agreements.Zostel claimed it fulfilled its obligations, including transferring its hotel business and staff to OYO, but the definitive agreements were never signed. It alleged that OYO reneged on the deal, primarily due to objections raised by a minority investor, Venture Nursery. In response, Zostel initiated arbitration proceedings in 2018..In an award passed on March 6, 2021 by a former Chief Justice of India, the arbitral tribunal ruled that Zostel was entitled to specific performance of OYO’s obligations under the term sheet. However, since definitive agreements had not been executed and no complete consensus existed on their terms, the tribunal did not order allotment of shares. Instead, it allowed Zostel to pursue appropriate proceedings for execution of the definitive agreements.Zostel then approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 seeking to restrain OYO from altering its shareholding - including via its proposed initial public offering (IPO) - on the ground that it would frustrate enforcement of the arbitral award..On February 14, 2022, Justice C Hari Shankar of the Delhi High Court dismissed Zostel’s plea. The Court held that the arbitral award merely entitled Zostel to seek specific performance and did not crystallise into an enforceable right to shares. As such, there were no “fruits” of the award that required protection under Section 9, it was held. The Court also rejected Zostel’s argument that an IPO would make enforcement impossible, stating there was no binding contractual bar against listing and no outstanding rights that violated the Securities and Exchange Board of India (Issue of Capital and Disclosure Regulations, 2018)..Later, in May 2025, a Bench comprising Justice Sachin Datta set aside the arbitral award in its entirety. Zostel first approached the Supreme Court in appeal against this May 2025 verdict.The top court, however, refused to entertain the plea, reasoning that Zostel should first file an appeal under Section 34 of the Arbitration Act instead of approaching the Supreme Court directly. After withdrawing the petition from Supreme Court, Zostel has now moved the Division Bench of the Delhi High Court with its appeal..Zostel was represented by Senior Advocate Abhishek Malhotra with Advocates Kartikay Dutta and Anukriti Trivedi..Advocates Anuradha Dutt, Lynn Pereir, Suman Yadav, Haaris Fazeli, Kunal Dutt, Raghav Dutt, Prachi Pandey, Avinash Singh and Seema Mehtra appeared for OYO. .[Read order]