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The Delhi High Court has passed a judgment on 14-02-2022 in the case of Zostel Hospitality Pvt. Ltd. Vs Oravel Stays Pvt. Ltd. & Anrs OMP (I) (COMM.) 290/2021. Justice C. Hari Shankar dismissed the petition.

FACTS OF THE CASE

Zostel Hospitality Pvt Ltd (“Zostel”) and one of its investor- shareholders Orios Venture Partners (“Orios”) decided to enter into a contract with Oravel Stays Pvt Ltd (“Oravel”), whereunder, essentially, Zostel would transfer its hotel business to Oravel and Orios, against which Oravel would, inter alia, transfer, to Zostel, “identified assets” which included 7% of its shareholding. The terms of this proposed arrangement were reduced to writing, in the form of a Term Sheet dated 26th November 2015. The opening recital in the Term Sheet read thus:

 “This preliminary term sheet (“Term Sheet”) sets forth the current intent with regard to the acquisition of identifiedassets of Zostel Hospitality Private Limited (“Target”) by Oravel Stays Private Limited (“Acquirer”) (“Acquisition”).This Term Sheet is non-binding and is intended solely as a summary of the current terms that are proposed by the parties; provided that the paragraphs opposite the headings “Confidentiality”, “Approvals”, “Expenses”, “Exclusivity” and “Governing Law and Arbitration” shall be legally binding provisions. The parties do not intend to be bound until they enter into Definitive Agreements regarding the subject matter of this Term Sheet, and either party may, at any time prior to execution of such Definitive Agreements, unilaterally terminate all negotiations pursuant to this Term Sheet without any liability to the other party.”

The term sheet of the agreement also contains some clauses and two annexures which contains closing obligations of the agreement and past closing obligations of the agreement.

Claiming that, owing to defaults on the part of Oravel, Zostel was unable to acquire the assets of Oravel, Zostel initiated arbitration proceedings against Oravel. An eminent former Chief Justice of India arbitrated culminating in an arbitral award dated 6th March, 2021. Zostel claims to have sought the relief, in the present petition, to ensure that the arbitral award is not frustrated and Zostel is not rendered unable to enforce the award. The concluding, operative para of the arbitral award reads as under:

“In view of the above findings, this Tribunal holds that Claimant is entitled to Specific Performance of the Respondent’s obligations under Term Sheet dated 26.11.2015. However, as Definitive Agreements have yet to be executed, the Tribunal holds that the Claimant is entitled to take appropriate proceedings for Specific Performance and execution of the Definitive Agreements as envisaged, for itself and its shareholders under the Term Sheet.

Further, the Claimant is entitled to costs in the cause.”

Oravel has challenged the arbitral award before this Court, by way of OMP (Comm) 151/2021, which is presently pending, and was listed along with the present petition on 9th February, 2022.

JUDGMENT

Court stated that the mere fact that, in that case, too, definitive agreements were to be executed between the parties, cannot render it a useful precedent. There are several features, in the said case, which distinguish the position which obtained there, with that which obtains in the present case. In that case, the MOU between the parties contained a specific clause, making it valid for 240 days from the date of its execution or till the execution of Definitive Agreements, whichever was earlier. There is no such clause in the present case. Further, the MOU was, under Clause 41(ii), enforceable against theparties in express terms. Clause 11 of the MOU, even more significantly, expressly stated that it “constitutes the entire agreement between the parties”. In such circumstances, this Court held, relying on the conduct of the parties, that the MOU was a concluded contract. It was especially noted by this Court, in para 87 of the report, thus, in respect of the Definitive Agreements to be executed between the parties in that case:

“So far as clause (b) of Section 14(1) of the Specific ReliefAct is concerned, the purpose of execution of the MOU wasto secure the execution of the definitive agreements. Theforms of these agreements are annexed to the MOU itself andthe terms and conditions thereof are not open to negotiation.If one party does not agree to any proposal made by the otherto alter or amend any term of the definitive agreements, theparties have no option but to proceed to execute the definitive agreements in the form in which they exist.”

The Court, in exercise of its limited jurisdiction under Section 9 of the 1996 Act, cannot revisit either the findings, or the conclusions, of the learned Arbitrator. In view of the foregoing discussion, no case, for injuncting making of the IPO by Oravel, can be said to exist.

The petition is, therefore, dismissed with no orders as to costs.

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ARTICLE WRITTEN  BY ABHINAV CHATURVEDI

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