The Delhi High Court has dismissed Zostel’s appeal claiming a 7% stake in Oyo Hotels & Homes in interim relief to the IPO-bound hospitality chain.

The plea was filed by Zostel to restrict Oyo from modifying its shareholding as the company is planning to launch its initial public offering (IPO) soon. The high court ruling was delivered by a single-judge bench headed by Justice C Hari Shankar.

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The court ruled that the 7% equity was never transferred to Zostel and the firm has no right to protect its 7% equity but has the right to seek specific performance under the sheet between the companies. The court did not find any merits in the plea filed by Zostel seeking a stay on the forthcoming IPO of OYO.

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Zostel and Ritesh Aggarwal-led Oyo have been engaged in a legal battle ever since an acquisition deal entered between the two fell through in 2016.

The issue started in 2015 when negotiations regarding Zostel’s acquisition of OYO began.

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In 2016, the merger talks fell apart and the deal was not implemented after a minority investor in OYO objected to the buyout. Zostel alleged that it had acted according to the 2015 term sheet and transferred its business to Oyo. However, despite agreeing to the terms of the contract, Oyo has not transferred 7% of shareholding to Zostel.

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An arbitral tribunal ruled that the 2015 term sheet was binding on Oyo. In April 2021, Oyo approached the Delhi HC challenging the tribunal award. Oyo maintained that there was no transfer of assets between the companies, no definitive agreement was signed and the hospitality major moved out of the deal after carrying out due diligence.

Zostel was looking to protect a 7% shareholding claim ahead of Oyo’s IPO and restrain Oyo from restructuring its shareholding structure.

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The Delhi HC ruling has come as a relief to Oyo, which is awaiting a nod from the market regulator SEBI for its $1.2 billion IPO. Oyo’s IPO will be one of the largest public listings by a new-age firm this year. The company had filed its initial papers including a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for its IPO in September 2022.