OYO Stake Fight: Zostel Withdraws Plea To Ring-Fence Disputed 7% Ahead Of IPO

Zostel has withdrawn its fresh plea before the Delhi High Court seeking protection for a disputed 7% stake it claims in IPO-bound OYO, now known as PRISM.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.

The July 8 order comes as the dispute extends beyond the courts and into PRISM's proposed initial public offering. Earlier this week, Zostel approached the Securities and Exchange Board of India, seeking a review of disclosures made by PRISM in its updated draft red herring prospectus filed for the proposed IPO.

The dispute dates back to OYO's proposed acquisition of Zostel's business in 2015. Zostel maintains that the transaction entitled it to shares in OYO, while OYO has argued that the underlying term sheet was non-binding and that the conditions required to complete the transaction were never met.

What Zostel Sought Before The Court

In its latest application, which it later withdrew, Zostel sought directions requiring OYO to maintain status quo over a 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.

Zostel argued that once shares were allotted, dematerialised and publicly traded, restoring its position at a later stage could become impractical.

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.

Under the arrangement recorded by a Division Bench during OYO's earlier IPO attempt, if OYO's challenge to the arbitral award failed and Zostel succeeded in enforcement proceedings, Zostel would either receive up to 7% of OYO's shareholding or be paid the equivalent value. OYO had also undertaken to communicate that order to SEBI.

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Appeal Pending Before Delhi High Court

In May 2025, the Delhi High Court allowed OYO's challenge and set aside Zostel's 2021 arbitral award, ruling that the underlying term sheet was non-binding and that specific performance could not be granted.

Zostel has appealed that judgment. The appeal remains pending before a Division Bench and is scheduled for hearing on Aug. 12.

A Zostel spokesperson told NDTV Profit: "OYO accepted the binding effect of the Court's order dated 14.03.2022, reaffirming that it shall transfer 7% equity in OYO (or the equivalent value thereof) to Zostel upon Zostel succeeding in the pending appeal. The Division Bench has listed the appeal for hearing on 12.08.2026. The proceedings mark a significant reaffirmation of Zostel's continuing rights, which are now set for adjudication on merits."

The dispute is now continuing on two fronts. Before the Delhi High Court, Zostel is seeking to overturn the judgment that set aside the arbitral award. Before SEBI, it is seeking closer scrutiny of PRISM's IPO disclosures, arguing that investors should be informed about a claim that, if upheld, could result in the issuance of up to 7% of OYO's equity or payment of its equivalent value.

PRISM disclosed the timeline of the dispute, including the contingent 7% stake, the arbitral award in Zostel's favour, the Delhi High Court's decision setting aside that award, and the pending appeal under Section 37 of the Arbitration and Conciliation Act, in its June 2026 updated draft red herring prospectus filed with SEBI.

PRISM declined to comment on the court order.

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