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Insolvency proceedings against Stayzilla ordered by NCLT: report

The National Company Law Tribunal (NCLT) has initiated insolvency proceedings against homestays aggregator Stayzilla, reports ETtech. The report mentions that Stayzilla had argued that the insolvency proceedings, brought on by a former vendor of the company Jigsaw Solutions, should be put on hold till a final judgment is passed in the ongoing criminal case against Stayzilla founder and CEO Yogendra Vasupal. However, NCLT said that the pending criminal case didn’t qualify for consideration as per sub-section (6) of section 5 under the Insolvency and Bankruptcy Code, 2016, which says:

(6) “dispute” includes a suit or arbitration proceedings relating to—
(a) the existence of the amount of debt;
(b) the quality of goods or service; or
(c) the breach of a representation or warranty;

Now the Insolvency Resolution Professional appointed by the tribunal, along with a board of creditors will evaluate the claims of non-payment of dues (apparently to the tune of Rs 1.72 crore) made by Jigsaw, following which they will initiate liquidation of Stayzilla assets to settle the said dues.

In March this year, Vasupal was taken into police custody after Jigsaw Solutions, a media agency, filed a case against Vasupal under sections of the law relating to criminal fraud and breach of trust. And subsequently his bail plea was rejected by a Special Court in Chennai. Around the same time as his arrest, Vasupal alleged that he and his colleagues were threatened by his landlord and that Jigsaw Solutions had framed charges against him.

Stayzilla shutdown

In February, Stayzilla had announced that it would be shutting down operations and rebooting with a new business model. All new bookings on the Stayzilla website and app were suspended, and Vasupal had clarified that “bookings with check-in dates on or before 28th February 2017 will be honored. Any booking with check-in after that date will be cancelled and the guests will receive 100% refund.”

In regards to the reason behind the closure of its service, Vasupal said that:

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“The demand and supply for homestays was non-existent 18 months back (before the launch of homestays), excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country…but this stretched us thin… This was further exacerbated by the discounting based growth rampant in the travel industry since 2015. Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth.”

MediaNama had visited the Stayzilla office in HSR Layout Bangalore and found the office had been evacuated. The company began operations in 2007 as budget hotel aggregator and later moved on to offer homestays, which was launched in late 2015.

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