In a significant legal development, the Supreme Court of India has dismissed Zostel Hospitality’s special leave petition (SLP) challenging the Delhi High Court’s May 2025 decision in favour of Oravel Stays Ltd—better known as OYO. The judgment concludes Zostel’s nearly ten-year battle over a failed acquisition deal originally intended to give its shareholders a 7% equity stake in OYO.
From 2015 Term Sheet to Year-Long Litigation
Their dispute began in November 2015, when OYO and Zostel (then operating ZO Rooms) signed a non-binding term sheet outlining a proposed all-stock acquisition. The agreement envisioned that Zostel shareholders receive up to 7% equity in OYO, contingent on execution of definitive documentation and due diligence. The deal ultimately fell apart by September 2016, leaving no binding contract.
Arbitration Ruling: 2021 Tribunal Recognizes Binding Intent
Three years later, in 2018, Zostel initiated arbitration. In March 2021, the tribunal ruled the term sheet was binding in function—despite its “non-binding” label—since Zostel had transferred assets, staff, and systems to OYO, and the latter accepted them. The tribunal ordered proceedings for specific performance.
Delhi High Court Overturns the Award: Non‑Binding Means Non‑Enforceable
In May 2025, a division bench of the Delhi High Court set aside the arbitral award, finding:
- The term sheet expressly stated it was non‑binding except for select clauses
- No meeting of minds or definitive agreement existed
- Public policy did not permit enforcing a preliminary document for specific performance
The court emphasized contractual language over party conduct and declined to enforce the award.
Consequently, Zostel’s execution petition and attempt to restrain changes to OYO’s share capital—including its IPO—were dismissed.
Supreme Court Closes Door on Zostel’s Appeal
Zostel filed an SLP to challenge the Delhi High Court’s decision. However, on 29 July 2025, the Supreme Court refused to admit the petition, noting Zostel should have pursued appeal under Section 37 of the Arbitration Act rather than bypass high court procedures using Article 136. Zostel has since withdropped the petition.
The SC’s ruling effectively upholds OYO’s legal victory and extinguishes Zostel’s claim to any equity or enforceable rights related to the failed acquisition.
Lessons for India’s Startup Ecosystem
- Non-binding term sheets remain legally non‑enforceable unless finalized agreements are executed.
- Conduct cannot override clear contractual disclaimers—OYO’s success underscores the judiciary’s strict textual interpretation.
- Startups must secure definitive contracts, not rely on verbal or provisional understandings, when scaling or seeking investments.
- Proper appeal channels matter—SLPs are not substitutes for statutory rights under Indian arbitration law.
Implications for the Hospitality Industry
Though both brands compete in budget and mid‑scale hospitality, the dispute underscores consequences for brand collaborations or failed acquisitions. The ruling may discourage future claims based on exploratory agreements and prompt more rigorous legal diligence in the hospitality sector. OYO continues to emphasize its global expansion uninterrupted.
Traveler Perspective: Why this Matters
For tourism stakeholders, the decision reinforces OYO’s stability—important for investors, regulatory clearance, and market confidence. Travelers relying on OYO’s services can be assured that legal overhangs are unlikely to affect operations or brand reputation.
Zostel, meanwhile, continues its hostel and group-travel operations independently, but its tried equity claims have been definitively closed. There is no immediate impact on travelers—just legal clarity.
Final Verdict: OYO Prevails, Zostel Appeal Ends
The Supreme Court’s dismissal of Zostel’s appeal upholds the Delhi HC ruling in OYO’s favour, marking a major conclusion to the long-standing legal conflict. The outcome underscores the enforceability standards around non-binding agreements and sends a clear message to startups on contractual precision.
Whether Zostel pursues alternate legal options remains speculative. Meanwhile, OYO’s legal position—and by extension its IPO pathway and investor clarity—stands strengthened.
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