Oravel Stays Pvt Ltd, which runs OYO hotel chain, has said it will 'vehemently oppose' any move to make it execute the definitive agreement for its disputed acquisition of Zostel Hospitality.
The statement has come after an arbitration panel allowed Zostal Hospitality to initiate 'appropriate proceedings' to claim 7 per cent stake in Oravel Stays Pvt Ltd for its shareholders under the term sheet of a merger agreement.
Zostel Hospitality (ZO Rooms) had taken OYO to the court claiming that it completed its obligation under a merger agreement signed in November 2015 and transferred its business to OYO but the latter failed to transfer 7 per cent stake to its shareholders.
Following a Supreme Court directive in October 2018, Justice A M Ahmadi was appointed as the sole arbitrator to resolve the dispute.
On the issue of whether Zostel is entitled to specific performance of the term sheet signed on November 26, 2015, by directing OYO to issue 7 per cent of the present shareholding, the tribunal observed that "the claimant (Zostel) is entitled to specific performance of the respondent's (OYO) obligations".
The tribunal, however, said as "Definitive Agreements have yet to be executed", it "holds that the Claimant (Zostel) 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." Claiming legal victory, Zostel in a statement said, "The order stated that OYO breached the term sheet by not executing Definitive Documents due to OYO's internal issue. The Tribunal recognised that the transaction was consummated as ZO Rooms transferred the entire business in 2016." Backpacker hostel start-up Zostel further said, "As a result of the breach, which was not caused by any default on part of the ZO and its shareholders, ZO Rooms' shareholders are entitled to issuance of decree of specific performance directing the parties to execute definitive agreement." In response, OYO in a statement said, "The final award purports to provide Zostel a right to initiate "appropriate proceedings" and for seeking execution of the definitive agreement while no specific remedy for the same was granted except against their prayer for a cost which OYO will vehemently oppose in all avenues available under the law of the land." OYO further said it is "presently evaluating legal remedies for challenging the award in as much as it appears to treat a clearly non-binding term sheet as a binding document giving rights or remedies to Zostel or its shareholders for the execution of the definitive agreement." The company continues to strongly hold its position that the parties were merely at the stage of discussions and no definitive agreements were finalised between the parties, as has also been confirmed by the Tribunal, OYO added.
It asserted that the Arbitration Tribunal has granted no specific relief to Zostel in terms of receiving ownership in OYO.
"The Arbitration hasn't given any direction for issuance of shares as the definitive agreement was neither agreed nor consummated and therefore, closing conditions were far from being achieved and the same has been acknowledged by the Arbitrator," it added.
OYO also said, "The Tribunal has ruled and categorically acknowledged that the definitive agreements, which are extremely important documents for any M&A transaction, were neither finalized nor agreed upon."