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NCLT admits corporate insolvency proceedings against Oyo’s Ahmedabad subsidiary

The National Company Law Tribunal (NCLT) has admitted Oyo Hotels and Homes Pvt. Ltd. (OHHPL), an Ahmedabad subsidiary of the Oyo Group, under the corporate insolvency resolution process after one of its hotel partners filed a Rs 16 lakh claim against the company.

Rakesh Yadav had moved a petition under Insolvency & Bankruptcy Code to seek compensation on unpaid dues. The owner of a 21-room hotel in Gurgaon, Yadav had entered an exclusive agreement with OHHPL permitting his hotel to be operated under the Oyo brand. However, Yadav is now owed Rs 16 lakhs in dues, since OHHPL started defaulting on payments.

According to an announcement on the website of the Insolvency and Bankruptcy Board of India, the NCLT has appointed Keyur Jagdishbhai Shah as the interim resolution professional (IRP), who will take over OHHPL and administer the corporate insolvency process under the Insolvency and Bankruptcy Code, 2016. Since the NCLT’s order came into effect on April 1, OHHPL’s operational and financial creditors can submit their claims against the company by April 14.

Oyo Group CEO Ritesh Agarwal said the company has paid the amount “under protest”, and has appealed to the appellate body National Company Law Appellate Tribunal (NCLAT).

NCLT sides with Yadav despite Oyo claims

According to their agreement, OHHPL would pay Yadav a “benchmark revenue” of Rs 450,000 by the 10th of each month. While OHHPL was regularly clearing dues between December 2018 to June 2019, it started defaulting on payments starting July 2019, dues which now total to Rs 16 lakhs. Yadav said OHHPL refused to make the payments despite repeated requests and even issuing a demand notice to the company under the IBC. 

In response, Oyo said OHHPL’s business was transferred to My Preferred Transformation and Hospitality Pvt. Ltd. (MPT) in June 2019, making it the legal debtor. Besides, Oyo also claimed that Yadav was not an operational creditor to begin with and that the dues owed did not tantamount to operational debt under the Code.

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However, the NCLT recognised that the payments were indeed due and that Yadav’s petition for beginning a corporate insolvency proceedings deserved to be permitted. 

The Adjudicating Authority [NCLT] is only required to consider whether there is any default and the debt is due and payable. In the instant case, the applicant [Yadav] has placed on record enough documents evidencing the default and hence, the present application deserves to be admitted. 

Further, the company law tribunal said MPT was arm-twisting Yadav on Oyo’s behalf by sending him a breach & cure notice and demanding several documents. This was done to “pressurise the petitioner [Yadav] to accept the changes in the Benchmark Revenue which was fixed under the Management Services Agreement”, the NCLT said. 

In the instant application, from the material placed on record by the Applicant [Yadav], this Authority is satisfied that the application is complete in all respect and the Corporate Debtor committed default in paying the operational debt due and payable to the Applicant.

What happens next?

If the NCLAT rules against Oyo then the insolvency professional will continue the corporate insolvency resolution process (CIRP), through which Oyo will have to square all the dues owed to its financial (typically banks) and operational creditors (creditors from sale of goods and services) who filed claims. Under the process, the insolvency professional will create a Committee of Creditors (CoC), which will take six months to evaluate all the claims and Oyo’s ability to repay.

The CoC effectively takes control of the company, and its board. As part of the corporate insolvency resolution process (CIRP), the CoC can recommend that Oyo make some operational changes, repay the dues as per a specific criteria or undergo debt restructuring, if required. In case OHHPL is short of funds, the CoC can recommend that the company seek additional funding from existing or new investors.

According to the source familiar with the matter, the matter is unlikely to proceed to the insolvency process, and its likely that the NCLAT will set it aside. If the NCLAT does not set aside the NCLT’s order, the CIRP of OHHPL will continue as per law.

In a company statement, Agarwal pointed out that a similar matter by a small operational creditor against Flipkart came before the NCLT in February. Though NCLT had admitted the application, it was later dismissed by NCLAT.

Oyo’s statement:

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“We are surprised to hear that the Hon’ble NCLT has admitted a petition against OHHPL, a subsidiary of Oyo for INR 16 lakhs in a contractual dispute, which dispute is not even with this subsidiary. We have filed an appeal. The matter is subjudice and we should refrain from commenting further on the merits of the matter at this stage.”

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