Zostel has asked the Securities and Exchange Board of India (SEBI) to review OYO parent company Prism’s IPO filing, saying that the company has not fully disclosed details of their long-running legal dispute. As OYO prepares for its third attempt to go public, Zostel claims that the IPO documents contain incomplete information that could affect investors.
According to Zostel, the Updated Draft Red Herring Prospectus (UDRHP) filed by Prism does not present the full background of the case. The company has requested SEBI to stop the IPO process until the disclosures are independently checked and corrected.
How the OYO-Zostel Dispute Began
The dispute started in November 2015, when OYO and Zostel Hospitality Pvt Ltd, which operated ZO Rooms, signed a term sheet to discuss a possible acquisition.
Under the proposed deal, OYO was expected to take over Zostel’s business assets, including its intellectual property, software, customer database and key employees. In return, Zostel’s shareholders were to receive a 7% stake in OYO, while the founders would receive a $1 million payment after completing certain conditions.
However, the term sheet clearly mentioned that it was non-binding, except for a few clauses such as confidentiality and arbitration. It also stated that the deal would become final only after both companies signed detailed legal agreements.
Those final agreements were never signed, and the acquisition did not go ahead.
Even after the deal collapsed, Zostel claimed that it had already completed most of its responsibilities by transferring future bookings, employee details and hotel partner data to OYO during 2016. OYO disagreed, saying that the commercial terms were never finalised and that no legally binding agreement was ever completed.
The disagreement later turned into a legal battle, with both companies filing criminal complaints against each other.
Arbitration Award and Court Proceedings
In 2018, Zostel started arbitration proceedings to settle the dispute. On March 6, 2021, the arbitral tribunal ruled in Zostel’s favour. It said that although the term sheet was described as non-binding, the actions of both companies had made it legally enforceable.
The tribunal did not accept Zostel’s demand for $17 million in damages or the separate $1 million payment for the founders. However, it allowed Zostel to seek specific performance, which could help it claim the promised 7% stake in OYO.
OYO challenged this decision in the Delhi High Court.
On May 13, 2025, the High Court set aside the arbitral award. The court said that a document clearly described as non-binding could not become legally binding just because of the conduct of the parties. It also said that there was no final agreement because the detailed contracts were never signed. The court also rejected Zostel’s request to stop OYO from moving ahead with its IPO.
Zostel then approached the Supreme Court through a Special Leave Petition. On July 29, 2025, the Supreme Court refused to hear the matter and asked Zostel to follow the proper legal process. After this, Zostel filed an appeal before a Division Bench of the Delhi High Court, where the case is still pending.
Why Zostel Wants SEBI to Review the IPO
On June 30, 2026, OYO’s parent company Prism filed its Updated Draft Red Herring Prospectus with SEBI for its third IPO attempt. The company plans to raise ₹6,650 crore through a fresh issue of shares, with no offer for sale by existing investors.
According to the IPO filing, around ₹4,987.5 crore, or nearly 75% of the money raised, will be used to repay the company’s Term Loan B debt. The remaining amount will be used for general corporate purposes.
The filing also reported a profit of ₹748 crore during the first nine months of FY26. However, a large part of this profit came from a deferred tax credit, which increased the reported earnings.
Prism has mentioned the Zostel case as a risk factor in its IPO documents. It said that if the legal case goes against the company, it may have to issue up to 7% of its share capital to Zostel or pay an equivalent amount in cash.
Zostel, however, says these disclosures tell only OYO’s side of the story. The company claims that the IPO papers do not mention important findings from the arbitration proceedings or its claim that it had already transferred valuable business assets before the deal fell through.
On July 3 and July 7, 2026, Zostel submitted a 56-page representation to SEBI, the BSE, the NSE and the IPO’s lead managers. It has requested the market regulator to review the disclosures carefully and delay the IPO until the information is fully verified.
As OYO makes another attempt to enter the stock market, SEBI’s response to Zostel’s request will be closely watched. The regulator’s decision could affect not only the timing of OYO’s IPO but also how companies disclose ongoing legal disputes before raising money from public investors.