The Delhi High Court (“Delhi HC”) has, vide its judgement dated May 13, 2025 (“Ruling”), in the case of Oravel Stays Private Limited v. Zostel Hospitality Private Limited, set aside an arbitral award that treated a non-binding term sheet as a binding document and granted the specific performance of certain obligations thereunder.

Case History.

This matter arose from a dispute between Oravel Stays Private Limited (“OYO”) and Zostel Hospitality Private Limited (“Zostel”) stemming from a term sheet dated November 26, 2015 (“Term Sheet”), executed between OYO, Zostel and two of Zostel’s shareholders namely, Internet Fund III Pte. Ltd., (Tiger Global) and Orios Venture Partners. The said Term Sheet contemplated acquisition by OYO of Zostel’s assets (including intellectual property, software, and key employees) in exchange of which: (i) Zostel’s shareholders were to receive 7% equity stake in OYO upon closing of the proposed transaction; and (ii) Zostel’s founders were to receive a payout of USD 1 million upon completion of the post-closing obligations.

Pertinently, the preamble of the said Term Sheet stated that it was non-binding in nature, except for specific provisions on confidentiality, approvals, expenses, exclusivity, governing law and arbitration, that were legally binding. The Term Sheet also stipulated the due execution of certain definitive documents, including a Share Subscription Agreement, Shareholders Agreement, and an Asset/ Business Transfer Agreement, to give effect to the proposed transaction.

After execution of the Term Sheet, significant disputes surfaced between the parties with Zostel claiming that while it had fulfilled its obligations thereunder, which included facilitating the transfer of employees, properties, and customer data to OYO, OYO had failed to take requisite steps towards finalizing the acquisition process. However, OYO disputed the binding nature of the Term Sheet and asserted that it was intended only as a preliminary framework, which was later terminated.

Consequently, Zostel initiated arbitration proceedings against OYO under the Arbitration and Conciliation Act, 1996 (“A&C Act”), seeking specific performance by OYO of its obligations under the Term Sheet and monetary damages for the loss of goodwill and reputation as well as inconvenience caused to Zostel. The arbitral tribunal, comprising of a sole arbitrator, under an award dated March 6, 2021 (“Impugned Award”), ruled in Zostel’s favour, holding that the Term Sheet became a binding document by virtue of the conduct of the parties and that Zostel was entitled to appropriate proceedings for specific performance and execution of definitive agreements, as envisaged under the Term Sheet. Interestingly, under the Impugned Award the arbitral tribunal determined that there was no consensus ad idem (meeting of the minds) between the parties as regards execution of any “definitive agreements” as contemplated under the Term Sheet.

Aggrieved by the above, OYO filed a petition under Section 34 (Application for setting aside arbitral awards) of the A&C Act, seeking to have the Impugned Award set aside.

… to read complete article, download the PDF file.

Authors of the Articles:

Mr. Avik Karmakar
Partner

and

Ms. Pritika Shetty
Senior Associate

The views expressed above are personal and do not represent those of Vaish Associates Advocates. They do not constitute legal advice.

If you have any questions regarding this article or any other aspects of law, please write to [email protected] & [email protected].

This article was published on Lexology!

Article Link: https://www.lexology.com/library/detail.aspx?g=a7534c87-bcda-4eef-80e3-71208769a987

DOWNLOAD PDF FILE