OYO Vs Zostel: SC Junks Hostel Chain's Appeal Against Delhi HC Order

The Supreme Court (SC) has refused to entertain an appeal filed by hostel chain Zostel against a Delhi High Court (HC) judgment that set aside a 2021 arbitral award against OYO’s parent Oravel Stays.

As per Bar and Bench, the SC observed that Zostel should have filed an appeal under Section 37 of the Arbitration and Conciliation Act (ACA) instead of directly approaching it by way of a special leave petition (SLP). As a result, Zostel reportedly withdrew the said petition.

Simply put, an appeal under Section 37 would send the petition to a division bench of the same High Court. On the other hand, an SLP is filed before the SC when there are no other legal avenues.

As of now, it is not clear if Zostel would take up the matter again at the HC.

The petition arose from a Delhi HC judgement, in May this year, on a plea filed by OYO under Section 34 of the ACA, 1996. The hospitality giant’s petition had challenged the arbitration tribunal’s 2021 ruling that held OYO liable for breaching a binding agreement in its acquisition of rival Zostel. The HC, in its order, set aside the arbitration tribunal’s ruling.

The OYO-Zostel saga has been dragging on for over a decade now. The legal stand-off between the two startups began in 2015, when OYO signed a non-binding term sheet to acquire the rival, which then was known as ZO Rooms.

As part of the deal, ZO Rooms’ shareholders were supposed to receive a 7% equity stake in OYO.

The proposed amalgamation fell through after a couple of years, leading to both parties filing legal cases and FIRs against each other. In 2021, the arbitration tribunal ruled in favour of Zostel, leading the hostel chain to undertake legal proceedings to enforce its rights.

Four years down the line, while squashing the arbitration ruling, the Delhi HC noted that the tribunal’s order violated public policy as it was based on a term sheet that was not binding. The HC also set aside the arbitral award that entitled Zostel to up to a 7% stake in OYO’s parent.

“The findings in the impugned award are virtually to the effect that Zostel is “entitled to specific performance” notwithstanding absence of consensus ad idem on vital material terms. The same tantamount to granting specific performance in the absence of a complete agreement between the parties. The same is contrary to the basic tenets of Indian law of contract and specific performance,” the HC said in its 47-page ruling.

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