Bengaluru:Zostel, which operates backpacker hostels under its namesake brand and hacker homes through Zo Houses, has approached the Sebi, seeking a review of disclosures made by Oyo’s parent, Prism Hospitality, in its draft IPO papers.In a 56-page representation dated July 3, Zostel alleged that the draft red herring prospectus (DRHP) does not adequately capture the nature or potential commercial impact of the decade-old dispute between the two companies. It urged the market regulator to examine whether the disclosures provide investors with a complete and balanced picture before the company files its red herring prospectus.A Zostel spokesperson confirmed to TOI that the representation had been filed with Sebi.The dispute stems from Oyo’s proposed acquisition of Zostel in 2015. Under the proposed transaction, Zostel and certain shareholders were to receive a 7% stake in Oyo. However, the deal fell through, triggering arbitration and subsequent court proceedings.In its DRHP, Prism said the term sheet signed between the parties was non-binding and exploratory, with no definitive agreements executed, key commercial terms remaining unresolved, and no transfer of Zostel’s business or key employees.Zostel, however, said these disclosures “do not fairly present the material factual record”. It argued that the filing omits key context relating to evidence examined during arbitration, including the alleged transfer of 1,505 confirmed future bookings, customer and application data, hotel-owner databases, employees and other operational information.According to Zostel, the disclosures could leave investors with the impression that the transaction never progressed beyond preliminary discussions. It maintains that parts of the transaction had already begun to be implemented before the deal collapsed.The dispute centres on whether the term sheet became binding through the parties’ conduct. Oyo has maintained that the transaction was never completed because key commercial terms were not finalised and no binding agreement was executed. Zostel contends that the parties had substantially acted upon the agreement.An arbitrator ruled in 2021 that the term sheet had become binding through the parties’ conduct, but did not direct Oyo to allot shares or pay compensation. The Delhi High Court set aside the arbitral award in May 2025, and Zostel’s appeal is pending.Prism’s DRHP discloses both the litigation and its potential consequences. It states that an adverse final ruling could require the company to issue or transfer up to 7% of its share capital, or pay an equivalent value, to Zostel and certain other parties.Zostel clarified that it is not asking Sebi to adjudicate the dispute itself, but to review whether the IPO disclosures fairly reflect the underlying facts. It has sought corrective or additional disclosures and requested that Sebi consider allowing the IPO to proceed only after completing that review.Prism plans to raise up to Rs 6,650 crore through a fresh issue. A company spokesperson for Oyo’s declined to comment on the development.
