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Supreme Court junks Zostel's plea against Oyo in arbitration dispute
In May this year, the Delhi High Court had set aside an arbitral award entitling Zostel to up to a 7 per cent stake in Oravel Stays. Zostel had appealed against this order before the Supreme Court.
A single-judge bench of Justice Sachin Datta of the Delhi High Court had passed the May order on a plea filed by Oyo under Section 34 of the Arbitration and Conciliation Act, 1996. Section 34 outlines the procedure for a party to challenge an arbitral award in court.
In an award dated 6 March 2021, the arbitral tribunal ruled that Zostel was entitled to specific performance of Oyo's obligations under the term sheet but did not order allotment of shares. It, however, allowed Zostel to pursue proceedings for the execution of the definitive agreements. The tribunal held that Oyo had acted in breach of a binding agreement after acquiring Zostel Hospitality, which owned ZO Rooms.
According to the agreement, Oyo had agreed to transfer a 7 per cent stake to ZO Rooms' shareholders, the tribunal had noted.
Oravel Stays and Zostel Hospitality—then rivals in the hospitality sector—were embroiled in a legal dispute over a proposed buyout deal. Zostel initially accused Oyo of failing to transfer the agreed 7 per cent stake. It later raised concerns over Oyo's draft red herring prospectus related to its proposed initial public offering (IPO). Oyo refuted all allegations and claimed the deal had been terminated by mutual agreement.
Zostel then approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking to restrain Oyo from altering its shareholding—including via the proposed IPO—on the grounds that it would frustrate enforcement of the arbitral award.
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