The long-running legal battle between Zostel and OYO has reached another important stage after the Delhi High Court disposed of Zostel’s latest application related to its claim for a 7% stake in OYO’s parent company. Although the fresh plea has been withdrawn, the main dispute is still ongoing, with the court scheduled to hear the appeal on August 12, 2026.
The latest development comes at a key time as OYO’s parent company, now called PRISM, is preparing for its initial public offering (IPO). The company has already filed updated draft IPO papers with the Securities and Exchange Board of India (SEBI), making the outcome of this case important for both the company and its investors.
Delhi High Court Closes Fresh Application
A Division Bench of the Delhi High Court, comprising Justices Nitin Wasudeo Sambre and Amit Sharma, disposed of Zostel Hospitality Pvt. Ltd.’s fresh application after the company decided not to press the plea.
Zostel had asked the court to protect its claimed 7% stake in OYO’s parent company by placing the disputed shares in an escrow account before the IPO. The company argued that this was necessary to make sure its claimed stake remained protected if the company’s shareholding changed after the public issue.
However, during the hearing on July 8, 2026, Zostel withdrew the application because both sides agreed that an earlier court order dated March 14, 2022, already protects its claim.
Under that earlier arrangement, OYO had agreed that if Zostel wins the pending appeal, it will either transfer the 7% equity stake or pay its equivalent value. Since this protection is already in place, Zostel chose not to continue with the fresh application.
The court then disposed of the plea and kept the main appeal pending. The Division Bench has fixed August 12, 2026, as the next hearing date for the case.
How the OYO-Zostel Dispute Began
The dispute started in November 2015 when OYO signed a preliminary term sheet to acquire the assets of Zo Rooms, a budget hotel chain run by Zostel Hospitality.
According to the proposed deal, Zostel’s shareholders were to receive up to a 7% stake in OYO after the transaction was completed. Zostel’s founders were also supposed to receive a payment of US$1 million after completing certain post-closing requirements.
Although the term sheet described itself as a non-binding document, Zostel later claimed that both companies had acted as if the deal was going ahead.
Zostel said it transferred 1,505 confirmed future bookings, customer data, hotel partner information, technology assets and employees to OYO. It also claimed that it had completed several steps needed to finalise the transaction, including arranging stamp papers for the final agreements.
However, the acquisition never happened because the final agreements were not signed. One of the main reasons was that Venture Nursery, a minority shareholder in OYO at that time, opposed the deal over valuation-related issues.
The failed deal led Zostel to start arbitration proceedings in 2018.
In March 2021, the sole arbitrator ruled in Zostel’s favour. The arbitrator said that the actions of both companies showed that the agreement had become binding, even though the term sheet was originally described as non-binding. The award also said that Zostel was entitled to seek specific performance of the agreement.
But in May 2025, the Delhi High Court set aside the arbitration award. The court ruled that specific performance could not be granted because important commercial terms of the deal had never been finalised, meaning there was no complete agreement between the parties.
After that decision, Zostel approached the Supreme Court but later withdrew its petition after being told to file an appeal before the Delhi High Court under Section 37 of the Arbitration and Conciliation Act.
IPO Plans Bring Fresh Attention to the Case
The dispute has become more important because of PRISM’s planned IPO.
In late June 2026, PRISM, formerly known as Oravel Stays, filed its updated draft red herring prospectus (UDRHP) with SEBI to raise around ₹6,650 crore through a fresh issue of shares. A large part of the money will be used to repay the company’s debt.
In its draft IPO papers, PRISM listed the Zostel case as a material legal risk. The company said that if the final court decision goes against it, it may have to transfer up to 7% of its shareholding to Zostel or pay an equivalent amount.
Zostel, however, believes these disclosures are incomplete. Earlier this month, the company submitted a detailed representation to SEBI, claiming that PRISM’s IPO documents do not fully explain the dispute. It said the filings do not properly mention the transfer of bookings, employees, customer data and other business assets that were handed over during the proposed acquisition.
Zostel has asked SEBI to direct PRISM to make more complete disclosures before moving ahead with the IPO. At the same time, the company has clarified that it does not want to stop the IPO as long as its claimed rights remain protected.
With the latest application now disposed of, the focus will shift to August 12, when the Delhi High Court will hear the main appeal. The decision could play an important role in settling the decade-old dispute and may also affect PRISM’s IPO and future shareholding structure.