The battle between Zo Rooms and Oyo has intensified with a fresh plea in the Delhi High Court against the restructuring move by the SoftBank-backed accommodation major.
Zo Rooms on Jan 21 filed a petition in the Delhi HC against Oyo's decision to restructure its businesses and house them in new entities without informing the arbitrator or Zo. It added the demerger will adversely affect the claim sought by Zo in the ongoing arbitration, contesting a 7% stake in Oyo parent — Oravel Stays.
Both Zo and Oravel Stay had entered into talks for a merger in 2015. These fell through, which eventually led to the ongoing arbitration. An M Ahmadi, former chief justice of India, is the sole arbitrator, following a Supreme Court directive in Oct 2018.
Zo has now made two new entities — Oyo Hotels and Homes, and Oravel Stays Singapore, a party to the arbitration. The Delhi High Court, after the new petition by Zo, in its order dated Jan 24, has asked Oyo to file a response on the matter to the arbitrator within two weeks. According to experts, this means these entities will also be bound by an arbitral award, based on the final decision.
For context, the original dispute was between Zo Rooms and Oravel Stays. But the recent transfer of parts of businesses by Oravel Stays to Oyo Hotels & Homes and Oravel Stays Singapore might result in Zo losing out on the value of businesses moving to other entities. If Oravel Stays is valued at $5 billion, a 7% stake would be valued at $350 million and, at a lower valuation, the same stake would be of less value. The Delhi high court, in its order, has mentioned that the petition stands disposed of and the arbitrator should fix a date of hearing with consent of both the parties.
In an e-mailed response, Oyo said it cannot comment specifically on the matter due to the prohibition imposed by judicial forums. “Important to note that this restructuring doesn’t have any adverse impact on the company’s value. The entire demerger process occurred and necessary filings were completed across different stages since March 2019 and even communicated publicly through newspaper advertisements in June 2019 and September 2019,” an Oyo spokesperson added.
Zo’s legal counsel declined to comment on the matter.
“The new entities that Oyo created and the division of assets, including alienation of the brand to Oyo Singapore, means they could technically be said to be outside the ambit of an award in the Zostel-Oyo arbitration. The result of the Delhi high court order is that these entities have also submitted to the arbitration process and are bound by an arbitral award,” said Vivek Durai, co-founder of Paper.vc, a business intelligence platform.
Last year in July, TOI reported Oyo’s parent company Oravel Stays is transferring the India hotel business — which also includes new areas like co-working and event management — to its subsidiary Alcott Town Planners, according to regulatory filings made by the company. All Oravel Stays shareholders will get the same number of shares in the India unit. Oravel Stays will house the technology business and the brand while holding a stake in Oravel Stays Singapore, which houses the global business.
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