Zostel Flags OYO's IPO Papers To SEBI Over Alleged Gaps In Dispute Disclosures

Zostel Hospitality has approached the Securities and Exchange Board of India (SEBI), seeking a review of disclosures made by Prism, the parent of OYO, in its updated draft red herring prospectus (UDRHP) ahead of its proposed initial public offering. In a 56-page regulatory representation submitted to SEBI, Zostel has alleged that OYO's draft offer document presents the long-running legal dispute between the two companies in a "materially incomplete, misleading and selective" manner.

The company has requested the regulator to direct corrective and supplemental disclosures before OYO files its red herring prospectus. Responding to queries from NDTV Profit, a Zostel spokesperson said, "It is a representation submitted to SEBI in relation to OYO's draft IPO prospectus. Broadly, it requests SEBI to review the adequacy and completeness of the disclosures made in the offer document. It is not intended to seek a determination on the underlying legal dispute, which remains before the courts.''

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The representation was submitted to SEBI on July 3 and a reminder was sent on July 7. No public acknowledgment has been made by SEBI. While Zostel has stated that it submitted the representation, the capital markets regulator has so far, not publicly confirmed receipt or announced any action over it. Zostel had also clarified in its representation that it is not asking SEBI to decide the underlying commercial dispute or rule on the pending court proceedings.

Instead, it said the regulator should examine whether the IPO document satisfies the requirement of "full, fair, accurate and balanced disclosure" for investors. Among its key allegations, Zostel said the UDRHP selectively presents OYO's litigation position while omitting material findings from the 2021 arbitral award and the underlying documentary record. It argued that investors are not given a complete picture of the nature and potential commercial implications of the dispute.

Zostel's allegations against OYO ahead of IPO launch

A central contention in the representation relates to Zostel's claim to an economic interest in OYO. The company argued that the IPO disclosures fail to adequately explain that the dispute includes a claim relating to approximately 7% economic interest in Oravel, which it says could be material for investors assessing the company's capital structure and valuation.

The representation also alleges that OYO's description of the transaction as merely a "non-binding term sheet" understates the findings of the sole arbitrator, former Chief Justice of India Justice A.M. Ahmadi, who had held the term sheet to be binding before the award was subsequently set aside. The representation further alleges that the UDRHP omits material context relating to alleged operational integration, including the movement of employees, transfer of customer bookings, customer data, proprietary databases, technology assets and other business information that formed part of the arbitral proceedings.

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According to Zostel, these issues are relevant for investors evaluating litigation risk because they go beyond a routine contractual dispute. OYO's updated UDRHP discloses several aspects of the dispute highlighted by Zostel. The offer document states that an adverse final outcome could require the company to issue or transfer up to 7% of its shareholding, or pay the equivalent monetary value, and identifies the litigation as a material risk factor. It also records OYO's position that the 2015 non-binding term sheet was exploratory in nature while expressly disclosing that the sole arbitrator had held it to be binding.

The draft prospectus also sets out the procedural history of the dispute, including the 2015 term sheet, commencement of arbitration in 2018, the March 2021 arbitral award, the Delhi High Court's May 2025 order setting aside the award, the subsequent proceedings and the pending Section 37 appeal before the Delhi High Court. It further discloses that the litigation could materially affect OYO's business, financial condition, reputation and shareholding structure.

Zostel, however, contends that while these disclosures exist, the offer document does not adequately disclose the factual record examined during arbitration, including evidence relating to alleged transfer of bookings, customer data, hotel-owner databases, technology assets, employee movement and operational integration. According to the letter, these facts are material for investors assessing the true nature and complexity of the litigation.

Zostel has urged SEBI to direct OYO to make additional, balanced disclosures so that prospective investors receive what it describes as a complete and fair account of the pending litigation before the IPO proceeds. OYO has consistently disputed Zostel's claims, and the matter remains pending before the Delhi High Court. OYO has declined to comment on NDTV Profit's queries on Zostel's letter.

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