From Acquisition to Accusations: What's Behind Oyo & Zostel’s Decade Long Feud

The Supreme Court on Tuesday rejected Zostel Hospitality’s petition to overturn a Delhi High Court order that favoured Oyo’s parent company, Oravel Stays.

The bench comprising Justices Sanjay Kumar and Satish Chandra Sharma said Zostel should have filed the appeal in the High Court instead of coming directly to the Supreme Court through a special leave petition (SLP).

The court noted that the proper route was to appeal under Section 37 of the Arbitration and Conciliation Act, which would have sent the matter to a division bench of the same High Court. Since SLPs are only meant for cases where no other legal options are available, Zostel reportedly withdrew its petition.

The petition stems from a May 2024 Delhi HC judgement on a plea filed by Oyo under Section 34 of the Arbitration and Conciliation Act, 1996. The hospitality giant’s petition had challenged the arbitration tribunal’s 2021 ruling that held Oyo liable for breaching a binding agreement in its acquisition of rival Zostel. The High Court had overturned that arbitration ruling, leading to Zostel’s now‑dismissed appeal attempt.

Oyo‑Zostel Feud

The Oyo‑Zostel saga stretches back almost a decade. The dispute is an amalgamation of a collapsed acquisition, conflicting interpretations of a non‑binding term sheet and a court battle that has swung back and forth through India’s highest forums.

On November 26, 2015, Oravel Stays (which would soon rebrand as Oyo) executed a term sheet with Zostel Hospitality (the owner of the Zo Rooms brand) and two of Zostel’s investors (Tiger Global and Orios Venture Partners), proposing an all‑stock acquisition of Zo Rooms. Under its terms, Zostel’s shareholders were to receive seven percent of Oyo’s equity once the deal closed.

However, the term sheet was explicitly labelled non‑binding and the companies never signed definitive transaction documents. By February 2016, SoftBank (Oyo’s largest backer) announced the acquisition as complete, but Oyo’s management later clarified that the term sheet had lapsed in September 2016 after due diligence and deal‑terms negotiations failed to converge.

A non‑binding term sheet is a preliminary document that outlines the basic terms and conditions of a potential business agreement such as a merger, investment or acquisition, but it is not legally enforceable.

Zostel’s Arbitration Win

Believing it had fulfilled its obligations by transferring IP, customer contracts and staff, Zostel initiated arbitration in late 2018 under former CJI A M Ahmadi.

In March 2021 the arbitral tribunal held that the term sheet amounted to a binding agreement, ordered Oyo to transfer the promised seven percent stake and awarded costs and interest. This decision seemed to agree with Zostel’s contention that “non‑binding” was mere boilerplate and that the practical handover of assets triggered Oyo’s share‑issuance obligation.

Delhi High Court’s Reversals

Oyo promptly challenged the decision before the Delhi High Court. In February 2022 the court stayed execution of the arbitral award, finding that a “determinable” contract without definitive, enforceable terms could not be specifically performed. But it was the May 8, 2025 judgment that decisively swung the pendulum.

On May 8, 2025 a division bench set aside the entire arbitral award, ruling that (a) the term sheet was non‑binding on its face, (b) there was no “meeting of minds” on essential deal terms and (c) public policy precluded enforcing such a document absent a concluded agreement.

It means that courts will not enforce an agreement that isn’t finalised or formally executed because doing so would go against the broader principles of fairness, certainty and legal clarity that public policy demands.

The court also dismissed Zostel’s execution petition, granting Oyo a complete victory in the commercial litigation.

Challenging this decision, Zostel moved to the Supreme Court through a special leave petition which was then rejected on Tuesday.