Zostel Calls on SEBI to Investigate Oyo’s IPO Documentation

Zostel has approached the Securities and Exchange Board of India (SEBI) with a request for the market regulator to investigate the disclosures made by Oravel Stays, Oyo’s parent company, in its updated draft red herring prospectus (UDRHP) related to its planned initial public offering (IPO). In a representation submitted on July 7, Zostel asserted that Oyo’s IPO documentation offers a partial and selective view of the prolonged legal conflict between the two entities.

Concerns About Completeness and Fairness

Zostel has urged SEBI to assess whether the disclosures comply with the standards of completeness, fairness, and material relevance as outlined in the SEBI Act and the ICDR Regulations before the IPO procedures continue. The company argued that the conflict goes beyond a typical commercial disagreement, as it involves Zostel’s claim to approximately 7% equity in Oyo, deriving from an unsuccessful acquisition agreement between the two firms. Zostel contended that the litigation’s outcomes could significantly influence Oyo’s capital structure, valuation, and investors’ perception of litigation risk, necessitating a more detailed disclosure in the IPO filings.

Background of the Dispute

The origins of the dispute can be traced back to 2015, when Oyo entered into a non-binding term sheet for the acquisition of Zostel’s business. In 2021, an arbitral tribunal ruled in favour of Zostel, yet the Delhi High Court subsequently overturned this decision, stating that the term sheet was non-binding and did not confer enforceable rights. In a further development, the Supreme Court declined to hear Zostel’s appeal against this ruling in July 2025. Zostel, however, asserts that there are ongoing appellate proceedings stemming from the conflict still pending before the Delhi High Court, which should be adequately represented in Oyo’s IPO disclosures.

Specific Allegations by Zostel

In its submission, Zostel claimed that the UDRHP minimizes the evidentiary record, presents a selective interpretation of the underlying transaction, and fails to sufficiently articulate the commercial implications of the pending proceedings. The company has requested that SEBI instruct Oyo to provide corrective or supplementary disclosures and that the book-running lead managers perform additional due diligence. Furthermore, Zostel has suggested that the IPO should proceed only after the issues regarding disclosures have been addressed.

Startup Superb has made inquiries with Oyo for more clarification on this matter. Last month, the prominent hospitality company submitted an updated draft red herring prospectus to SEBI, aiming to generate Rs 6,650 crore through a new share issue, without any offer-for-sale component.