Backpacker hostel chain Zostel has withdrawn its fresh plea before the Delhi High Court seeking protection for a disputed 7% stake in IPO-bound OYO (now known as Prism). The court dismissed the application as "not pressed" after noting that both parties remain bound by a court-recorded arrangement made in 2022 governing the disputed equity. According to Business Standard, in its latest application, which it later withdrew, Zostel sought directions requiring OYO to maintain status quo over the block representing up to 7% of its shareholding, preserve the stake in escrow or provide equivalent security, and refrain from taking irreversible IPO-related steps unless the disputed stake was protected. The Delhi High Court disposed of the application after referring to its March 2022 order, which continues to protect Zostel's claimed rights over up to 7% of OYO's equity if it succeeds in enforcing the arbitral award. The matter was heard by a Division Bench comprising Justice Nitin Wasudeo Sambre and Justice Amit Sharma on July 8.
Beyond reaching out to the Delhi High Court, Zostel has approached the Securities and Exchange Board of India (Sebi) alleging that Prism (the parent firm of hospitality brand Oyo) has made incomplete, misleading and selective disclosures in its updated draft red herring prospectus (UDRHP-I). According to reports from Business Standard, Zostel is seeking corrective disclosures before Prism proceeds with its initial public offering (IPO). In its 56-page representation dated July 3, Zostel alleges that the draft red herring prospectus (DRHP) does not adequately capture the nature or potential commercial impact of the decade-old dispute between the two companies. The representation was submitted to Sebi on July 3 with a reminder sent on July 7, though no public acknowledgment has been made by the regulator. A Zostel spokesperson confirmed to NDTV Profit that the representation was submitted to SEBI in relation to OYO's draft IPO prospectus, requesting SEBI to review the adequacy and completeness of disclosures made in the offer document.
The development comes less than two weeks after Prism filed its UDRHP-I for its proposed IPO, which comprises a fresh issue of shares worth up to ₹6,650 crore. As reported by Business Standard, Prism and Zostel are locked in a legal dispute over the failed acquisition attempt. While Zostel alleges that the other party did not complete the deal, Prism maintains that the term sheet it signed was non-binding in nature. In its UDRHP-I, Prism mentioned that if the outcome of the legal proceeding is unfavourable, it can impact the company's business. "Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition, including potential issuance or transfer of up to 7 per cent of our shareholding," it stated. The current IPO documents, according to Zostel, don't mention enough about their claim for 7% equity in Oyo or the financial impact of this ongoing court case. The dispute centres on whether the term sheet became binding through the parties' conduct, with Oyo maintaining that the transaction was never completed because key commercial terms were not finalised and no binding agreement was executed.
According to Zostel's representation, the company argues that while Prism has disclosed the existence of the litigation, it has not made all relevant disclosures. As reported by Business Standard, the representation states that "The UDRHP-I... presents the dispute in a manner that is materially incomplete, selectively curated and capable of conveying a misleading impression to investors." Zostel adds that certain statements contained in the UDRHP-I reproduce Prism's litigation position in categorical terms without fairly disclosing that the arbitral record contains detailed findings and documentary material inconsistent with those statements. The company seeks to determine whether the UDRHP-I satisfies the standard of fair, complete and balanced disclosure. Zostel claims the current IPO documents don't mention enough about their claim for 7% equity in Oyo or the financial impact of this ongoing court case. Among its key allegations, Zostel argues that the UDRHP selectively presents Oyo's litigation position while omitting material findings from the 2021 arbitral award and the underlying documentary record. The company contends that investors are not given a complete picture of the nature and potential commercial implications of the dispute.
The Delhi High Court has listed Zostel's appeal against IPO-bound hospitality firm Oyo for hearing on August 12, while disposing of an interim application Zostel filed. As per The Times of India, this represents a significant development in the ongoing legal proceedings between the two companies. The dispute centres on whether the term sheet became binding through the parties' conduct. Oyo has maintained that the transaction was never completed because key commercial terms were not finalised and no binding agreement was executed. An arbitrator ruled in 2021 that the term sheet had become binding through the parties' conduct, but did not direct Oyo to allot shares or pay compensation. However, the Delhi High Court allowed OYO's challenge and set aside Zostel's 2021 arbitral award in May 2025, ruling that the underlying term sheet was non-binding and that specific performance could not be granted. According to Zostel, the disclosures could leave investors with the impression that the transaction never progressed beyond preliminary discussions, as it maintains that parts of the transaction had already begun to be implemented before the deal collapsed. The dispute stems from Oyo's proposed acquisition of Zostel in 2015, under which Zostel and certain shareholders were to receive a 7% stake in Oyo.
Beyond reaching out to Sebi, Zostel has also contacted stock exchanges and lead managers, pushing for an independent review and even a pause on Oyo's IPO until all disclosures are fully transparent. According to Business Standard, Zostel's representation does not ask Sebi to adjudicate the long-running commercial dispute between the two companies as the matter remains before the courts. Instead, it argues that the regulator should examine whether investors are receiving a complete and balanced account of the litigation. The company has requested that Sebi determine whether material aspects of the arbitral and appellate proceedings have been adequately disclosed and whether additional disclosure is warranted in the interests of investor protection. Zostel has sought corrective or additional disclosures and requested that Sebi consider allowing the IPO to proceed only after completing that review. In its latest statement on July 7, Zostel has urged SEBI to evaluate whether the disclosures fulfil the requirements of completeness, fairness, and materiality outlined in the SEBI Act and the ICDR Regulations before permitting the IPO process to advance. The company has requested that SEBI instruct Oyo to make necessary corrections or add disclosures, compel the book-running lead managers to conduct further due diligence, and consider permitting the IPO to proceed only after the disclosure issues are resolved. Oyo has consistently disputed Zostel's claims and declined to comment on NDTV Profit's queries on the letter.
