Zostel Hospitality, the parent company of Zo Rooms, has written to SEBI seeking suspension of the proposed initial public offering (IPO) of Oravel Stays, which runs OYO.
In the letter, Zostel has reiterated its stand that the DRHP is ultra vires and the IPO is “not maintainable” as the capital structure of the Gurugram-based startup is not finalised yet.
“The DRHP is replete with material omissions and blatant misstatements, intended to mislead the public into investing into Oravel’s shares without appreciation of the risk involved,” the letter to SEBI said.
Zostel told SEBI that the management, the directors, the officers and the independent directors of Oravel, as well as book-running lead managers of the IPO, have been “derelict in their duty” to carry out necessary due diligence in the matter, resulting in their failure to ensure Oravel’s adherence to the norms and regulations.
Responding to the letter, OYO in its statement has called Zostel’s move as an attempt to overreach Delhi High Court’s proceedings. “After multiple attempts in the courts and arbitration tribunal, Zostel’s communication shows unnecessary and repetitive efforts to create a wrong perception. This shows a pattern of Zostel trying to distract OYO from pursuing its business goals,” it said.
A statement from the OYO counsel noted that there have been numerous rounds of funding to raise equity capital during the pendency of the arbitral proceedings. ‘Likewise, the IPO is another round of funding to raise equity capital (albeit from public shareholders). Nothing in the Award prevents or restrains OYO from going ahead with the same,” said the counsel’s statement.
In March 2021, Zo Rooms (owned by Zostel) was issued partial relief by a tribunal court. Zostel had claimed that the arbitral tribunal had directed OYO to issue 7% shareholding to Zostel (ZO Rooms) founders and execute the term sheet agreements. However, OYO said that the tribunal has not awarded any such claim to Zostel.
In the final section on the reliefs that each party is entitled to, Justice Ahmadi stated, “This Tribunal holds that Claimant [Zostel] is entitled to Specific Performance of the Respondent’s [OYO] obligations under Term Sheet dated 26.11.2015. However, as Definitive Agreements have yet to be executed, the Tribunal holds that the Claimant is entitled to take appropriate proceedings for Specific Performance and execution of the Definitive Agreements as envisaged, for itself and its shareholders under the Term Sheet.”
In legal terms, specific performance is a legal remedy used by the courts to direct parties to execute the contract as per the terms agreed. This means Zostel can take steps to prove its case and get the specific performance award.