PRISM IPO: Delhi HC disposes of Zostel's fresh application in OYO dispute; main appeal to be heard on Aug 12

The Delhi High Court has disposed of a fresh application filed by Zostel in its long-running legal dispute with PRISM, the parent company of OYO, after the appellant chose not to “press” the plea. The main appeal in the matter will now be heard on August 12.

The matter was heard by a two-judge Division Bench of the Delhi High Court on July 8, which disposed of the application after Zostel chose not to press it. The Bench observed that the issues raised would be considered during the hearing of the pending appeal.

"The present application is not pressed in view of the order dated 14th March, 2022..." and ordered that "The application, as such, stands disposed of," the order read. The court listed the pending appeal for hearing on August 12, 2026.

Responding to the latest proceedings, a Zostel official said, "OYO accepted the binding effect of the Court's order dated March 14, 2022, reaffirming that it shall transfer 7% equity in OYO (or the equivalent value thereof) to Zostel upon Zostel succeeding in the pending appeal."

"The Division Bench has listed the appeal for hearing on August 12, 2026. The proceedings mark a significant reaffirmation of Zostel's continuing rights, which are now set for adjudication on merits," the official said.

The pending Section 37 appeal against the Delhi High Court's May 2025 judgment is scheduled to be heard on August 12, 2026, the official added.

The latest development comes as PRISM prepares for its proposed initial public offering (IPO). The proposed IPO consists solely of a fresh issue of equity shares worth up to ₹6,650 crore, with no offer for sale (OFS) component. The company intends to allocate ₹4,987.5 crore from the net proceeds towards repayment or prepayment of certain outstanding borrowings, with the balance earmarked for general corporate purposes.

Latest plea marks Zostel's ninth unsuccessful judicial attempt

Manish Dhir, Founder of Chestlaw, Advocates & Solicitors, said, "This is their ninth unfruitful judicial attempt. It is also significant that during the recent court proceedings, Zostel's counsel himself clarified that they do not seek to obstruct the IPO process while claiming protection of their alleged rights."

Referring to Zostel's representation before Sebi, he added, "It is unfortunate that, despite repeated judicial findings in favour of PRISM/OYO, attempts are being made to revive claims that have already been rejected after substantial adjudication."

Dhir said PRISM had made all disclosures required under applicable laws and regulations for the IPO and maintained that any pending issues should be resolved through the judicial process rather than through parallel regulatory representations.

"We believe that any matters pending adjudication must be resolved through the judicial process and not through parallel representations or attempts to influence regulatory proceedings. We remain confident in the strength of PRISM's legal position and will continue to place complete reliance on the judicial and regulatory framework," he said.

IPO paper mentions Zostel case

In its updated draft red herring prospectus (UDRHP) filed with the Securities and Exchange Board of India (Sebi) late last month, the company stated that any adverse outcome in the ongoing litigation with Zostel may materially affect its business, reputation, financial performance, operating results and future prospects. It also disclosed that such an outcome could potentially require the issuance or transfer of up to 7% of its equity shareholding.

In 2015, PRISM entered into a non-binding term sheet with Zostel Hospitality Private Limited and certain other parties to explore a potential acquisition of Zostel's business. The proposed transaction, however, did not materialise. Zostel later alleged that it had fulfilled all its obligations under the term sheet, while claiming that PRISM failed to complete the acquisition process. PRISM disputed the allegations, maintaining that the term sheet was merely exploratory in nature and did not create binding obligations.

An arbitral tribunal subsequently ruled in Zostel's favour, holding that the term sheet was binding. PRISM challenged the award before the Delhi High Court, which, in May 2025, set aside the arbitral award, holding that the term sheet was largely non-binding and that specific performance could not be granted in the absence of definitive agreements on essential commercial terms. The court also held that the arbitral award was contrary to the public policy of India.

Background of the litigation

The dispute dates back to 2018. Zostel first approached the Gurugram District Court under Section 9 of the Arbitration and Conciliation Act, but the petition was dismissed for lack of territorial jurisdiction. In January 2020, the Delhi High Court disposed of another Section 9 petition without granting interim relief and referred the matter to arbitration. In July 2020, the arbitral tribunal rejected Zostel's principal interim reliefs, including its request for a bank guarantee.

On February 14, 2022, Zostel again moved the Delhi High Court seeking to restrain OYO's proposed IPO, place up to 7% of its alleged shareholding in escrow and freeze changes in the company's shareholding structure. The petition was dismissed after the court held there was no arbitral award directing the allotment of shares or granting specific performance.

In July 2025, Zostel withdrew its Special Leave Petition before the Supreme Court. The following month, it also withdrew its appeal in the enforcement proceedings after the court noted that no execution proceedings were pending. Days before the latest hearing, Zostel approached Sebi over PRISM's IPO disclosures while continuing with its pending appeal before the Delhi High Court.