- Zostel sought SEBI review of PRISM's draft IPO.
- Dispute stems from failed 2015 OYO-Zostel deal.
- PRISM filed its UDRHP-I less than two weeks ago.
BACKPACKER HOSTEL CHAIN Zostel asked the Securities and Exchange Board of India to review disclosures made by PRISM, OYO's parent, in its updated draft red herring prospectus ahead of its initial public offering. It said the offer document does not adequately present the dispute with OYO, according to media reports.
The development comes less than two weeks after PRISM filed its UDRHP-I for its proposed IPO, comprising a fresh issue of shares worth up to $701 million.
In a 56-page representation submitted on July 3, Zostel asked SEBI to examine whether the prospectus complies with the SEBI Issue of Capital and Disclosure Requirements Regulations, 2018.
According to NDTV Profit, the company also sent SEBI a reminder on July 7. The regulator has not publicly acknowledged the representation.
A Zostel spokesperson confirmed the filing and said it sought a review of the IPO disclosures, not a determination of the underlying legal dispute, according to The Economic Times.
The company urged SEBI to assess whether the offer document gives investors a full and fair account before PRISM files its red herring prospectus.
PRISM is led by Founder and Group CEO Ritesh Agarwal, who also chairs G6 Hospitality, parent of Motel 6 and Studio 6.
Failed 2015 deal
The dispute stems from OYO's proposed acquisition of Zostel in 2015, under which Zostel and certain shareholders were to receive a 7 percent stake in OYO. The deal collapsed, leading to arbitration and court proceedings.
PRISM's draft red herring prospectus states that the 2015 term sheet was non-binding, that no definitive agreements were executed, that key commercial terms remained unresolved and that Zostel's business and key employees were not transferred. Zostel disputed that account, saying the disclosures omit facts examined during arbitration.
According to the reports, Zostel said evidence considered during arbitration included the transfer of 1,505 confirmed future bookings, customer and app data, hotel-owner databases, employees, technology assets and other operational information. It argued these facts show the transaction had progressed beyond preliminary discussions and was being implemented.
Zostel also said the dispute involves a claim to about a 7 percent economic interest in Oravel, which it said is material to investors assessing PRISM's capital structure and valuation. It alleged that the draft red herring prospectus does not adequately reflect the nature or commercial implications of the claim.
Pending litigation
The dispute centers on whether the term sheet became binding through the parties' conduct. OYO maintained that no binding agreement was reached because key commercial terms were never finalized, while Zostel has argued that the parties substantially acted on the agreement.
Former Chief Justice of India A.M. Ahmadi, serving as sole arbitrator, ruled in 2021 that the term sheet became binding through the parties' conduct but did not direct OYO to issue shares or pay compensation. The Delhi High Court set aside the award in May 2025 and Zostel's appeal under Section 37 of the Arbitration and Conciliation Act remains pending.
PRISM's draft red herring prospectus discloses the litigation, the arbitral award, the Delhi High Court's order and the pending appeal. It states that an adverse ruling could require the company to issue or transfer up to 7 percent of its share capital or pay an equivalent amount and could affect its business, financial condition, reputation and shareholding structure.
Zostel said it is not asking SEBI to decide the dispute but to examine whether the disclosures reflect the factual record and litigation risk. OYO has disputed Zostel's claims and declined to comment on NDTV Profit's queries. The appeal remains pending before the Delhi High Court.
In June, Zostel opened Zostel Guwahati, marking its entry into Assam and expanding its presence in Northeast India. The property is on the outskirts of the city near the Brahmaputra River.
