Why The NCLT Admitted An Insolvency Plea Against OYO Hotels
Ritesh Agarwal, founder and chief executive officer of OYO Hotels & Homes. (Photographer: Akio Kon/Bloomberg)

Why The NCLT Admitted An Insolvency Plea Against OYO Hotels

A dispute over a Rs 16 lakh payment between Oyo Hotels & Homes Pvt. and a Gurgaon-based hotel owner has led to the initiation of insolvency proceedings against the Oyo subsidiary. The company runs hotel rooms and vacations home rentals across 80 countries.

The National Company Law Tribunal, Ahmedabad, found that the petition by Rakesh Yadav, owner of Yellow White Residency hotel, fulfilled the conditions under the Insolvency and Bankruptcy Code for admitting an insolvency petition initiated by an operational creditor.

While admitting the petition, the NCLT in its order noted that:

  • The petitioner was able to establish the existence of a debt and failure to pay the debt by Oyo Hotels.
  • Oyo Hotels committed a default in payment of operational debt.

Oyo has described the matter as a contractual dispute and has filed an appeal, a company spokesperson said on April 7 in an emailed statement. Meanwhile, an interim resolution professional has invited creditors to file claims against Oyo Hotels by April 15, according to a public announcement on the Insolvency and Bankruptcy Board of India’s website.

Rakesh Yadav’s Case

Rakesh Yadav, owner of a 21-room hotel in Gurgaon, approached the Ahmedabad tribunal claiming that his hotel entered into an agreement with OYO Hotels giving the hospitality company an exclusive license to operate and manage the Gurgaon hotel under the Oyo brand. As per the agreement, Yadav was entitled to payment of ‘’benchmark revenue’’ of Rs 4.5 lakh on or before the 10th of every month.

Between July and December 2019 Oyo Hotels defaulted on some payments, Yadav claimed. The total default is around Rs 16 lakh.

Despite several requests Oyo Hotels refused to pay, Yadav told the tribunal, adding that his demand notice went unanswered. This prompted him to file an insolvency resolution case against the company.

OYO Hotels’ Argument

Oyo Hotels has denied that it owed any debt to Yadav, and said the petition was wrongly filed against it. The company transferred its business in June 2019 to My Preferred Transformation and Hospitality Ltd., another company of the Oyo group, the Oyo Hotels told the court

All partners, including the petitioner had been informed, and therefore any grievance could be raised only against My Preferred Transformation and Hospitality. Besides, there existed a a previous dispute between the group company and Yadav, Oyo Hotels told the NCLT.

The company also argued that any claim arising out of transactions related to an immovable property cannot be categorised as operational debt under the Insolvency and Bankruptcy Code .

Why NCLT Admitted The Case

The NCLT Ahmedabad bench didn’t agree with Oyo Hotels’ arguments.

The tribunal examined the intimation letter on the transfer of business presented by Oyo Hotels and noted that:

  • There was no name and designation of the signee in the letter.
  • Even assuming the letter was issued to Yadav it was clear from it that there was no change in the original agreement between the original parties.
  • Oyo Hotels was liable to make payments of the dues and the dues owed by them qualified as operational debt
  • MTH on behalf of Oyo Hotels resorted to “arm-twisting acts’’ such as issuing breach and cure notice, demanding copy of several documents...
  • This, the tribunal held, was to pressurise the petitioner to accept changes in the benchmark revenue fixed under the management services agreement.
  • There was no pre-existing dispute between Yadav and Oyo Hotels.

The NCLT therefore admitted the petition and declared a moratorium on Oyo Hotels as per the provisions of the Insolvency and Bankruptcy Code. It also appointed Keyur Shah as the interim resolution professional.

The date of hearing of Oyo Hotel’s appeal at the appellate tribunal is not known yet.

Also read: Oyo Has $1 Billion to Fund Operations Until IPO, CEO Tells Employees

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