Backpacker hostel chain Zostel has withdrawn its latest application filed before the Delhi High Court seeking directions to market regulator Securities and Exchange Board of India (Sebi) regarding its claim to a nearly 7% stake in Oravel Stays (now PRISM), the parent company of Oyo. According to reports from Business Standard, the court allowed Zostel to withdraw its application while also declining to intervene at this stage in Sebi's handling of Zostel's complaint, observing that the regulator would examine the matter in accordance with the law. On Monday, August 10, the Delhi High Court granted Zostel liberty to approach the court again at an appropriate stage, noting that OYO's draft offer document has not yet been cleared by Sebi and indicating that Zostel's objections should be considered by the market regulator first. This marks the third withdrawal by Zostel, following previous applications withdrawn on July 8 and earlier in the dispute. The latest development comes after the matter was briefly heard last week, when an issue concerning Zostel's legal representation came up, with its previous counsel informing the court that legal fees remained unpaid while Zostel had engaged new counsel for the latest application.
The development comes a month after Zostel approached Sebi, alleging that Oyo made incomplete, misleading and selective disclosures in its updated draft red herring prospectus-I (UDRHP-I). As reported by Business Standard, Zostel had sought corrective disclosures before Oyo proceeded with its initial public offering (IPO). In June this year, Oyo filed the draft papers for its proposed IPO, which comprises a fresh issue of shares worth up to ₹6,650 crore. The company had specifically alleged that material details concerning its long-running dispute with Oyo and its claimed entitlement to nearly 7% of Oyo's equity were not adequately disclosed in the draft offer document. PRISM has characterized Zostel's applications as frivolous and not maintainable after three quick withdrawals, according to Business Standard.
For context, Oravel and Zostel are locked in a legal dispute over a failed acquisition attempt that dates back to 2015, when Oyo had proposed acquiring Zostel. According to Business Standard, while Zostel alleges that the other party did not complete the deal, Oravel maintains that the term sheet it signed was non-binding and primarily exploratory in nature. The legal battle has spanned multiple jurisdictions, with Zostel approaching the Gurugram district court, Delhi High Court on multiple occasions, the Supreme Court and appellate benches of the Delhi High Court since 2018. The dispute resurfaced after OYO confidentially filed its IPO papers in December 2025, prompting Zostel to seek directions to escrow 7% of OYO's equity shares and urge SEBI to closely scrutinize the company's IPO disclosures. The matter remains pending, with Zostel maintaining that it is entitled to shares in Oyo arising from the proposed transaction and claiming an entitlement equivalent to nearly 7% of Oyo's equity.
In May 2025, the Delhi High Court set aside the arbitral award that formed the basis of Zostel's claims, holding that the parties' term sheet was largely non-binding and that specific performance could not be granted in the absence of definitive agreements on essential commercial terms. As reported by Business Standard, none of those proceedings have resulted in substantive relief for Zostel in its long-running legal battle with Oravel. Following Monday's court proceedings, Zostel stated that its withdrawal was based on the court's observation that its objections should first be considered by Sebi, given that the draft offer document has not yet received regulatory clearance. The company emphasized that its rights and remedies remain fully reserved and unaffected, and it would continue to monitor Oyo's proposed IPO while remaining committed to protecting its rights as well as investor interests. Separately, Zostel recently approached SEBI over Oyo's draft IPO disclosures, alleging that the filing omitted material details related to the dispute, seeking a review of the disclosures as Oyo prepares for its IPO process.
In a statement shared with Inc42, Zostel confirmed that it withdrew the application after the HC observed that its concerns regarding the IPO disclosures would be considered by SEBI in any case, given that the draft papers are yet to receive regulatory approval. "Accordingly, Zostel withdrew its application at this stage, with liberty to approach the Court at the appropriate time. Zostel's rights and remedies remain fully reserved and unaffected," the company stated. Zostel added that the substantive dispute with OYO continues to remain pending before the Delhi High Court and said it remains confident of its position on the merits of the case. The ₹6,650 crore public issue, comprising entirely a fresh issue of shares, is aimed at repaying or prepaying certain borrowings and supporting the company's growth initiatives. The latest development does not resolve the underlying ownership dispute between the two companies, instead leaving SEBI to examine Zostel's objections as part of its regulatory review of Oyo's proposed public issue.
