Home / Companies / Start-ups /  NCLT begins insolvency action against Stayzilla

Mumbai/Bengaluru: Stayzilla, the high-profile online homestay aggregator that shut shop in February and grabbed headlines after the arrest of its founder, is finally in bankruptcy court.

The Chennai bench of the National Company Law Tribunal (NCLT) has approved insolvency proceedings against Inasra Technologies Pvt. Ltd, which runs Stayzilla.

Jigsaw Solutions, an advertising agency and Stayzilla’s operational creditor, filed a petition under the Insolvency and Bankruptcy Code (IBC) before NCLT on 7 September, claiming the homestay aggregator had defaulted on paying dues of Rs1.69 crore.

The NCLT bench headed by Mohd Sharief Tariq said in its order pronounced and signed on 15 September and uploaded on Monday that it is satisfied the firm had indeed defaulted on paying its dues. “It is established that the operational debtor (Stayzilla) has committed the default in making payment of outstanding debt to the corporate creditor along with interest as claimed by the operational creditor (Jigsaw)," said the NCLT order.

NCLT also approved the appointment of an interim resolution professional (IRP). With this, a 180-day resolution process starts, which may be extended later by another 90 days.

“It’s important for companies to be proactively litigious when they find any issues with vendors... under this Act, these vendors can become operational creditors and take the companies to insolvency," said Yogendra Vasupal, chief executive officer, Stayzilla, in a text message to Mint.

 “This Act is draconian and biased against companies. It’s a new Act, so nobody’s fault, but there will be casualties till it reaches a better balance," Vasupal added.

Jigsaw did not immediately respond to a detailed email questionnaire seeking comment. Stayzilla was started in 2006 by Vasupal, Sachit Sanghi and Rupal Yogendra. Among its investors were Matrix Partners and Nexus Venture Partners.

Stayzilla suspended operations on 24 February this year, claiming it will restructure and restart operations. It said it shut the business as it was an “unviable business model".

“It is difficult to gauge the effect of this order on start-ups in general, but this and some other recent experiences is a clear indication that creditors in general are ready to initiate proceedings under the IBC against defaulters," said Shankh Sengupta, partner at law firm Trilegal. 

In March, Aditya C.S., founder of Jigsaw, said Stayzilla had not paid him dues worth Rs1.69 crore since January 2016, and filed a case against Vasupal and chief financial officer Singhi. The Chennai Police arrested Vasupal on 14 March. He was later released on bail. 

Citing the criminal complaint, Stayzilla said at the NCLT that the claim was ‘disputed’ as the payment of the outstanding debt is involved in a criminal case and is pending before a trial court. However, NCLT did not consider this a ‘dispute’.

“Filing a criminal complaint filed by a creditor should not ordinarily impact the insolvency process, unless the court holds that the claims of the creditor are not sustainable or disputed," said Sengupta of Trilegal. 

“While operational creditors can initiate proceedings under IBC, operational creditors do not have control over the resolution process. A resolution plan is required to be approved by at least 75% of the committee of creditors, which is comprised of financial creditors alone. Although a threat of initiation of an insolvency resolution process (and a potential liquidation) can create tremendous pressure on the debtor," Sengupta added.

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