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This article is written by Nishish Mishra who is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.


After a deal is closed, parties to the transaction might wonder that the toughest part of the process is over. However, after a merger or an acquisition is completed, it is just the beginning and complexities may arise. Once a merger or acquisition is closed there can be issues pertaining to price adjustment, representation and warranties, etc. 

In this article, we will delve into one such acquisition transaction between two very well-known companies namely, OYO and Zostel. We’ll analyse what were situations that led to the present condition and also, briefly discuss the judgement given by the arbitrator for the transaction and in whose favour was the award been passed. Let us first begin with what the businesses of these companies are and get an idea about their parents and subsidiaries.


Zostel is one of the largest and oldest networks of hotels and homes in India. It is a privately held company which is headquartered in Gurugram and was founded in 2013. It is led by CEO and Co-founder Dharamveer Singh Chouhan. OYO on the other hand is an Indian hospitality chain of leased and franchised hotels, homes and living spaces which is headquartered in Gurgaon and was founded by Ritesh Agarwal in 2013. 

Zostel’s subsidiary ZO Rooms and OYO which is owned and operated by Oravel Stays had entered into consultations for a merger in 2015, performing an agreement on the 26th of November, 2015. The acquisition transaction was to meant to be an asset sale with Zo Rooms founders and lead investor Tiger Global acquiring and holding seven percent (7%) in OYO together. However, the transaction was never completed, instead fuelling an acrimonious dispute between the two parties.

Transaction and the Dispute

As per the claims of Zostel, ZO Rooms completed its obligation under the agreement and transferred the business, but OYO however, did not transfer 7 per cent to the ZO Room’s shareholders. As a result of which, Zostel accused OYO of breaching a binding agreement after the acquisition. OYO concerned that it had identified several issues during the due-diligence process, where they noticed momentous liabilities and unpaid dues came to light. This situation in no time sooner or later began its march towards a dispute which lately concluded through an Arbitration. 

Grievances and Counter criticisms followed and in 2018, OYO filed a criminal complaint against the founders of Zostel. The complaint claimed various offences in relation to criminal breach of trust, cheating and misrepresentation of data. Before this complaint was made by OYO, it had filed other criminal charges under the Information Technology Act and Copyright Act with the Cybercrime Department and the Economic Offences Wing (EOW) for stealing assets and other data. Zostel on the other hand alleged OYO of stealing data of ZO Rooms during merger talks.

After the adjudication of Delhi and Gurgaon High Court moved in the favour of OYO, two years ago, Zostel then turned towards the apex court of justice, the Supreme Court. The Supreme court later in 2018 appointed an Arbitrator to deal with the dispute.

Zostel recently claimed, that it has won the three-year legal battle against Oravel Stays, which owns and operates hotel chain OYO, with reference to the alleged breach of a binding agreement by the latter, after the acquisition of Zostel. It also believed that, if the order from the Arbitrator was to be given effect, allotment of seven per cent to ZO Rooms’, shareholders could have possibly been expected to become the most important exit within the Indian start-up ecosystem, which had the potential to surpass the Snapdeal and Freecharge Deal of $400 Million back in 2015.

However, OYO upholding otherwise, said that there’s no such relief to ZO Rooms in terms of getting any share ownership in OYO. The Ritesh Agarwal-led company also claimed that no definitive agreements are in situ to consummate the transaction which the tribunal has categorically acknowledged and also that the definitive agreements, important for any M&A transaction, were neither deep-rooted nor decided.

To understand the crux of the transaction in more detail, we shall study a little about what Definitve Agreements actually are and what are the functions it serves and performs.

What is a Definitive Agreement?

A Definitive Agreement is usually known by many other names, including “stock purchase agreement” and “definitive merger agreement” then on then forth. But it executes and performs similar functions in every case. It basically states the finalized terms of the deal that the customer and seller are agreeing to. Unlike a Letter of Intent (LOI), which is an initial document, a possible buyer might send over when brooding about buying a corporation, the Definitive Agreement is definitive, i.e. ‘Final’.

The key terms of the Definitive Agreement include:

  • The Buyer and the Seller;
  • Price (per share or Lump-sum for personal Companies); and
  • The sort of the transaction.

For public companies, this part is candid; the worth is usually given on a per-share basis, with the precise share count and therefore the treatment of dilutive securities is incarnated afterwards.

Till now we also understand the cruciality of a Term Sheet in an acquisition transaction, but do we really know what and how a term sheet actually does? Why is it considered to be so important in an investment transaction? Let us find this out below.

What is a Term Sheet?

A Term Sheet or rather a Letter of Intent may be a letter from the customer to the vendor during which the customer states its intent to succeed in a definitive agreement with the vendor for the acquisition of the seller’s business. The letter typically sets forth certain material terms and conditions upon which the business is going to be acquired and, consequently, represents the preliminary understanding of the customer and seller regarding the proposed sale. 

The sheet might not contain all of the essential terms of the transaction, however, and should expressly state that the parties will plan to reach a definitive agreement within a specified time-frame. Additionally, unlike letters of intent which are signed by both the customer and therefore the seller, term sheets aren’t necessarily signed by the parties.

Terms Sheets are usually sort or rather seen in two ways, binding and non-binding. Let us further analyse the difference between the two and know their respective benefits and drawbacks.  

Differences between a Binding and a Non-Binding Term Sheets

A term sheet usually has some provisions that are called out as being “binding” even though the remainder of the term sheet is usually not binding. These binding provisions give the non-breaching party a right to sue for breach of these “binding” provisions. Confidentiality and exclusivity, for instance, are typically provisions that the entrepreneur/investor would want to be ready to enforce. Confidentiality is to make sure that either party keeps the terms of the negotiation confidential, and exclusivity is to make sure that either party doesn’t go searching for other investors/start-ups until a definitive agreement is reached. 

The best advantage of this is often to make sure that the parties negotiate in straightness. The effect of a “non-binding” term sheet is that parties aren’t obligated to finish the transaction. they’re however obligated to barter in straightness i.e., proceed with an intention to finish the transaction. There are some instances when no such “binding” terms are inserted during a term sheet. While this is often usually a symbol of goodwill, the term sheet itself would probably not be upheld during a court of law. If such a deal were to be aborted mid-way for whatever reason, the term sheet and related correspondence could probably be used as evidence to prove intention although it’s unlikely that anything there would be enforceable or any damages would be awarded. 

In short, if you’re drafting a term sheet, confirm to insert these binding provisions to form sure the start-up features a sporting chance to finish the transaction. Below mentioned are the usually ‘binding terms during a substantially non-binding term sheet:

  • Confidentiality Clause.
  • Cost and expenses Clause.
  • Exclusivity Clause.
  • Conduct of the business Clause.

By now, we have studied and got an overall idea about the whole transaction. Let us now finally read and understand what the Arbitrator has to say on this and what was his take on the 3-year long dispute between the 2 companies.

The judgement of the Arbitrator

As per the directives of the Supreme Court in October 2018, Justice Aziz Mushabber Ahmadi who may be a former judge of India (CJI) was appointed because of the sole Arbitrator. 

The Arbitral Tribunal was of a view that the term sheet between Zostel and OYO was a binding agreement in which OYO had breached the term sheet by not executing definitive documents due to their own internal issues. The Tribunal also acknowledged that the transaction was concluded as ZO Rooms transferred the whole business in 2016. The tribunal added, that the breach which wasn’t caused by any default on the part of the ZO and its shareholders, ZO Room’s shareholders were entitled to the issuance of a decree of performance, directing the parties to execute a definitive agreement. 

However, consistent with OYO, while the order noted that the non-binding term sheet was alleged to be held as binding, the term sheet itself had several key elements like assets, value, etc. including commercials that weren’t conceded within the term sheets itself. The corporate also said that only the legal costs were awarded as damages to ZO Rooms whilst the award of performance of non-binding term sheet which in itself had no agreed financials, was subjected to commencement of further proceedings and was prospective to be challenged.


The three-year-long OYO and Zostel dispute gave us new horizons and taught us the deficiencies to be kept in mind while drafting a Definitive Agreement or a Term Sheet. 

A term sheet that has all the terms and relevant information regarding the deal will help make sure that every party understands exactly how the deal will move forward. It’ll assist you to avoid misunderstandings which will rather be incredibly detrimental when discovered afterwards within the transactional process.

We also come to know that, even when the term sheet does not encompasses binding obligations, simply signing on to a term sheet can cause both parties to feel more committed to the deal at hand. Term sheets carry an inherent duty to measure up to your word, which may help stabilize an otherwise shaky transaction.



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