Delhi HC to hear Oyo-Zostel appeal on August 12 amid IPO scrutiny

NEW DELHI: The courtroom check-out is still some distance away. Just as Oyo prepares to welcome public market investors, its long-running legal tussle with Zostel has once again checked into the spotlight, with the Delhi High Court fixing August 12, 2026, for the next hearing in the closely watched dispute.

The Delhi High Court has disposed of a fresh application filed by Zostel Hospitality in its legal battle with PRISM, the holding company of Oravel Stays, the parent of Oyo. In an order dated July 8, the court recorded that the application was “not pressed” in view of its earlier order of March 14, 2022, without examining the merits of the case. The principal appeal, however, remains pending and has now been listed for hearing on August 12.

The latest development comes weeks after Zostel approached the Securities and Exchange Board of India (SEBI), alleging that Oravel Stays’ updated draft red herring prospectus (UDRHP) for its proposed initial public offering does not adequately disclose the ongoing litigation. Zostel has urged the market regulator to examine whether the disclosures comply with the provisions of the SEBI Act and the Issue of Capital and Disclosure Requirements (ICDR) Regulations.

The dispute traces its roots back to November 2015, when Oravel Stays and Zostel signed a non-binding term sheet (NBTS) for the proposed acquisition of certain Zostel assets. The transaction was abandoned in September 2016 after the parties failed to agree on a revised structure.

In January 2018, Zostel initiated arbitration, seeking specific performance of the agreement and the transfer of 7 per cent equity in Oravel Stays. Oravel countered that the term sheet was exploratory, no definitive agreements had been executed, key commercial terms remained unresolved, and no assets or employees had been transferred.

The sole arbitrator later held that the term sheet was binding and allowed Zostel to pursue appropriate proceedings for specific performance and execution of definitive agreements. However, the tribunal neither directed Oravel to issue shares nor awarded any monetary compensation.

Zostel subsequently filed execution and interim applications seeking the issuance of up to 7 per cent equity in Oravel Stays and OYO Hotels and Homes Pvt Ltd, along with legal costs. It also sought to restrain the company’s IPO in 2021, but the Delhi High Court dismissed that plea in February 2022.

A month later, on March 14, 2022, the High Court disposed of Zostel’s appeal by recording a consensual arrangement between the parties. The court observed that if Oravel’s challenge to the arbitral award ultimately failed and Zostel succeeded in enforcement proceedings, Zostel could receive either up to 7 per cent shareholding in the company or its equivalent value, subject to the outcome of the litigation.

The legal landscape shifted significantly in May 2025, when the Delhi High Court allowed Oravel’s petition under Section 34 of the Arbitration and Conciliation Act, setting aside the arbitral award on the ground that it conflicted with public policy. As a consequence, Zostel’s enforcement petition was also dismissed.

Despite securing that ruling, Oyo has continued to flag the dispute as a risk factor in its IPO documents. In its updated DRHP, the company cautioned that acquisition-related litigation could potentially result in the issuance or transfer of up to 7 per cent of its shareholding, depending on the outcome of pending appellate proceedings.

With the latest order, the legal battle remains far from over. While the fresh application has been withdrawn, the core dispute continues to cast a shadow over Oyo’s IPO journey, with the next chapter now set to unfold in the Delhi High Court on August 12.