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OYO, Zostel at loggerheads over arbitration award
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SME Times News Bureau | 08 Mar, 2021
In a stretched battle, hospitality major OYO Hotels & Homes and
hostel chain Zostel are at loggerheads over an arbitration award as OYO
said that the Arbitration Tribunal adjudicating the dispute between two
entities has granted no specific relief to Zostel in terms of receiving
ownership in the hospitality major.
In a blog on Sunday evening,
OYO said: "We are stating that the Arbitration Tribunal has granted no
specific relief to Zostel in terms of receiving ownership in OYO."
However, Zostel in a statement claimed victory in the matter.
"OYO
acted in breach of its binding agreement after its acquisition of rival
Zostel Hospitality, ruled the Arbitral Tribunal, directing OYO to sign
the documents and issue the shareholding as committed in the Term
Sheet," it said.
The term sheet executed between the two parties on November 26, 2015, promised ZO Rooms' shareholders 7 per cent of OYO.
Paavan
Nanda, Ex Co-founder, Zostel, said: "We welcome the judgement by the
Hon'ble tribunal. Beyond the monetary compensation, it was a fight for
our rights and reputation. We are extremely relieved with the judgement
that the arbitral tribunal has pronounced after diligently evaluating
the merits and evidences produced by us over the last 3 years."
The arbitrations' panel delivered the ruling on Saturday.
OYO
in its blog said that that 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".
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, the blog said.
The
final award, however, 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, it said.
"This
tribunal holds that claimant is entitled to specific performance of the
respondent's obligations under Term Sheet data on November 26, 2015.
However, as definitive agreements have yet o be executed, the tribunal
holds that the claimant is entitled to appropriate proceedings for
specific performance and execution of the definitive agreement as
envisaged for itself and its shareholders under the term sheet, " said
the award.
It noted that globally, M&A transactions take
place through non-binding term sheets to initiate an exploratory process
to decide on a deal and even to proceed to sign or not definitive
agreements and they are by far not considered binding in nature
"Experts
also believe that not just transactions going forward will find it hard
to negotiate due to the inability to be sure if the Non-Binding term
sheet will remain non-binding or not, such an award will not be
executable, given multiple stakeholders, multi stage complexities and
agree on a definitive agreement as of date where most of the terms are
no longer possible of being completed by the claimants," OYO said.
As
per OYO's blog while giving direction for seeking specific performance
of the non-binding term sheet, the tribunal has not acceded to the
request of Zostel and its shareholders demanding monetary damage from
OYO.
It was clearly stated that the relief seeking $1 million by
Zostel couldn't be granted as the same is dependent on the fulfilment of
post-closing obligations and the definitive agreements where
post-closing obligations were to be negotiated and agreed were not
agreed mutually and executed, it said.
OYO 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.
"OYO continues to strongly
hold its position that the parties were merely at the stage of
discussions and no definitive agreements were finalized between the
parties, as has also been confirmed by the Tribunal," said the blog.
OYO
and Zo have been fighting it after OYO called off its acquisition of Zo
Rooms citing inability to reach an outcome to identify potential value
in Zo's business after thorough due diligence.
According to
Zostel, ZO Rooms completed its obligation under the agreement and
transferred the business but OYO failed to transfer 7 per cent to the ZO
Room's shareholder, which eventually led to the arbitration process.
Zostel
in its statement said: "If the order from the Arbitrator is to be given
effect, allotment of 7 per cent to ZO Rooms' shareholders will make
this outcome the biggest exit in the Indian startup ecosystem."
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