New Delhi: The Supreme Court has directed arbitration to settle the dispute following failed acquisition by Oyo of Zo Rooms.

Former Chief Justice of India A M Ahmadi has been appointed the sole arbitrator in a petition filed by Zo Rooms, run by Zostel Hospitality Pvt. Ltd, against Oyo (Oravel Stays Pvt. Ltd) with the Supreme Court. Ahmadi will look into the dispute for a period of 12 months after which the ongoing legal battle is expected to reach a conclusion.

“On a scan of the arbitration clause, there can be no doubt that a clause of arbitration exists between the parties in the term sheet. Whether the claims are arbitrable or not, is within the domain of the arbitration," stated the Supreme Court order. This is in accordance with clause 16 of the non-binding agreement proposed in late 2015 for the potential acquisition of Zo Rooms by Oyo, which eventually fell through in October last year.

However, Japan’s SoftBank, a lead investor in Oyo, had announced the acquisition of Zo in its earnings report in February 2016, Mint reported.

Mint has reviewed a copy of the Supreme Court judgment dated September 19.

“We welcome, respect and value the Supreme Court’s decision to appoint an arbitrator while giving Oyo the opportunity to agitate the issue of arbitrability. The court has also expressly observed that merely because the court is appointing an arbitrator does not mean that the court is accepting that the disputes or the claims raised by Zostel are arbitrable," Oyo said in a statement.

The budget hotel startups are at loggerheads since October last year after Oyo called off its acquisition citing inability to reach an outcome to identify potential value in Zo’s business.

The SoftBank-backed Oyo in January dragged Zostel to court on charges of breach of trust, cheating and misrepresentation of data. Oyo also stated continuous inconvenience and harassment by Zostel founders. In response, the Tiger Global Management-backed Zo Rooms filed an arbitration petition with the Gurugram district court in February, which was dismissed on grounds of lack of jurisdiction.

Reportedly, Oyo is alleged to have taken over more than 200 Zo employees, properties and Zo’s data under the pretext of its proposed acquisition without compensating the company.

“ZO is extremely relieved after honorable SC allowed our petition for arbitration – to finally get a forum to present all facts and data related the entire business transfer of ZO (its employees, properties, bookings, IP & data) to Oyo," Zo said in a statement.

According to the term sheet, the founders of Zostel and investors were to get a 7 per cent stake in the combined entity. Given that Oyo recently raised $1 billion from Softbank’s Vision Fund along with other investors at a valuation of nearly $5 billion, the stakes for Zo at 7 per cent would be worth $350 million.

Through arbitration, Zo will look forward to presenting a “huge data room of facts and evidences to support business transfers and claims". “We strongly believe in Justice Ahmadi’s most sought after guidance and experience in arbitration matters. Justice will prevail and the aggrieved will get its dues – no matter how many frivolous cases and other harassment tactics are used to muzzle our voice," Zo added.