The upcoming OYO IPO faces new regulatory scrutiny from its long-standing legal challenger. Budget lodging platform Zostel approached the Securities and Exchange Board of India to investigate the draft prospectus of OYO parent firm Prism Hospitality.
OYO IPO Objections Raised By Zostel
Zostel submitted a 56-page representation to the market regulator on July 3 2026. The firm issued a public statement regarding this regulatory request on July 7 2026. Zostel claims that the updated draft red herring prospectus (DRHP) of the OYO IPO contains a partial view of the legal battle.
The budget platform wants SEBI to check if the current draft documents fulfill the official criteria for completeness and fairness. Zostel argues that this matter is not a standard business conflict. The final ruling directly impacts a claim for approximately 7 percent equity stake in OYO. This potential outcome could alter the corporate capital structure and total business valuation.
Conflicting Views On The 2015 Transaction
The corporate conflict began in 2015 during a planned business acquisition. OYO signed a preliminary term sheet to take over the operations of Zostel. OYO maintains that the transaction never concluded because the parties did not sign definitive agreements. The hospitality firm states that the term sheet remained exploratory.
Zostel rejects this description of the transaction. The firm states that the draft papers omit important factual evidence from past arbitration files. Zostel claims that the two entities had already executed parts of the agreement before the deal stopped. The firm notes that it transferred 1,505 confirmed future bookings to OYO. The platform also shared customer application data and operational databases during that period.
Timeline Of The Legal Battle
An arbitration tribunal originally passed a ruling in favor of Zostel in 2021. The Delhi High Court later cancelled that arbitral award in May 2025. The High Court decided that the initial term sheet was non-binding. The Supreme Court then declined to hear an appeal by Zostel in July 2025. However, legal appeals regarding the primary dispute remain active inside the Delhi High Court.
Prism Hospitality mentioned this litigation inside its draft red herring prospectus. The company stated that an unfavorable final judgment might force the business to transfer up to 7 percent of its total share capital to Zostel. The firm also listed the option to pay an equivalent financial value.
Demands Placed Before SEBI
Zostel clarifies that it does not want the market regulator to settle the court case. The firm wants SEBI to verify if the public disclosures are balanced for retail buyers. Zostel requested the regulator to demand necessary corrections from the company. The firm also wants the book-running lead managers to perform additional due diligence on the transaction records.
Zostel requested SEBI to halt the progress of the public issue until the company resolves these disclosure issues. OYO plans to raise up to ₹6,650 crore through this fresh issue of shares. A corporate spokesperson for OYO declined to give comments on this matter.
Disclaimer: This news report covers regulatory complaints and legal disputes involving upcoming IPO. Consult a financial specialist before applying for an IPO.