Zostel Hospitality (ZO Rooms) has filed a case in a Gurugram court against OYO parent Oravel Stays Pvt., alleging that OYO stole a host of ZO Rooms’s data such as employees, assets, hotel properties, etc. while conducting due diligence in a process of acquisition, which eventually did not happen, reports The Economic Times.

According to the report, ZO Rooms has alleged in its petition that OYO obtained certain confidential information, and “in fact acquired the entire business of the petitioner (ZO Rooms) and is now refusing to pay the dues owed to the petitioner”. Note that In 2015, OYO was exploring acquisition of ZO Rooms, and rather we had confirmation from SoftBank on that, but later OYO called it off.

In its latest petition, ZO Rooms has said that OYO has caused irreparable harm to the company, as it delayed and then refused to buy out the company, and that OYO is solely liable to compensate. ZO Rooms wants the court to order OYO to deposit the revenue earned from the hotels that were acquired from ZO Rooms, and prevent OYO from diluting any of these assets. It also wants the court to pass an order for search and seizure of OYO to retrieve ZO’s stolen data and bar the company from using that data. The ET report also mentions that ZO wants the court to restrain OYO from raising any funds through equity that will change the status quo.

However, on this matter, OYO shared a statement with MediaNama and said, ZO is actually blackmailing the company and has filed the legal case as part of their ‘counterblast strategy’. And on February 16, OYO filed a criminal complaint against the founders of Zostel pertaining to Criminal Breach of Trust, Cheating and Misrepresentation of data. Following is the full statement by OYO.

Since more than one-year, we’ve been continuously inconvenienced and harassed by Zostel and its directors. They’ve used every tactic, from sending letters carrying false allegations to OYO’s management to writing to our shareholders, for intimidating and pressurizing us to submit to their unreasonable demands. OYO has filed a criminal complaint against the founders of Zostel on January 16, 2018, under Section 405, 406, 415, 420, 425 and 426 pertaining to Criminal Breach of Trust, Cheating and Misrepresentation of data. They are only trying to arm twist and blackmail OYO and its investors into getting their deal done without having a real business or even a binding agreement at hand and threatening us through legal routes. Even much prior to this, OYO has filed other criminal cases under section 379, 414, 420 and 120B of IPC and other implications under IT and Copyright Acts with the Economic Offences Wing & Cybercrime department against senior employees of Zostel for stealing data and other assets including laptops which continue to be under Zostel’s access even now and being used to its benefit.

In order to ramp up their tactics, Zostel, as a part of their counterblast strategy has filed a misconceived and baseless Section 9 arbitration petition in the Gurgaon court on February 2, 2018, making false allegations against OYO including but not limited to allegations around various hotel, employee and consumer asset transfer. These allegations relate to a long expired andnon-binding term sheet. It is absolutely false to suggest that OYO benefited from talks of the deal since the Zo business had been faltering at that stage. There was also no response to a list of issues identified during our diligence process, including significant liabilities and unpaid dues as well as undisclosed contingent liabilities. Getting into a deal with this background would have been harmful for our reputation and our business. OYO ultimately saw little value in Zostel’s business and there was a significant loss of trust owing to issues mentioned in our previous statement. In any event, while they claim that they have always been willing to do the deal but they shut down the app and website giving neither us nor their customers or owners any prior notice thereby making it impossible for Zostel to ever effect any customer migration leave alone a smooth business transfer which was key to the deal discussion.

This formal civil proceedings filed by Zostel against OYO actually comes as a relief to us as this will bring the complete matter in front of the honourable court and we hope that this will also put an end to all such maneuvers of Zostel. OYO will, of course, oppose and contest all claims made by Zostel since in our view Zostel does not have any justifiable and/ or valid claim against OYO. We have full faith in the courts of law and believe that it will take the right decision and justice will be delivered.”

A quick timeline of what happened before

  • Back in December 2015reports began circulating saying that Zo Rooms will be acquired by OYO.
  • Then in February 2016, SoftBank also confirmed the deal.
  • But OYO officially put an end to this transaction in September in the same year.
  • And at that time Zo Rooms had called OYO’s decision to terminate acquisition done in ‘bad faith‘.
  • Before all this, in April 2015, the Delhi High Court issued a stay order against Zostel, based on an alleged copyright material theft complaint filed by OYO Rooms.  OYO Rooms alleged then that Zostel’s launched hyperlocal hotel rooms booking platform Zo Rooms is based on data copied from them. Apparently, OYO Rooms produced emails and CCTV footage to claim that some of its employees stole proprietary software from the company, and left to join Zostel.