The OYO contempt of court case could set a precedent for other startups that operate on a minimum business guarantee model
The Delhi High Court has given OYO time until October 5, to submit an affidavit listing its debt-free assets and a sealed envelope listing its hotels, shareholding status and property valuations. The directions were given on August 20.
This came after hospitality firm Anam Datsec filed a contempt of court petition on August 10 against OYO, its Founder Ritesh Agarwal, and directors Anuj Tejpal and Rakesh Kumar, for failing to provide the affidavit as per a July 7 order from the court.
The order, as per which the list and response was to be submitted within two weeks, was given while hearing a case against the company for non-payment of dues to Anam Datsec for its Golden Sands property in Calangute, Goa. The latter had sought Rs 8 crore in damages.
The case, experts told Mint, will set precedence for other consumer internet startups that operate on a minimum business guarantee model (MBG). Such startups have been struggling to keep up with vendor and supplier payments due to the current economic instability, the report said.
OYO and NestAway have relied on MBG contracts – which guarantees a fixed monthly payment, to attract property owners, after which the companies take over renovation and renting duties for the leased properties. However, in the current economic, both have invoked force majeure citing a negative impact on business.
Apart from the property startups, vehicle rental startups such as Zoomcar and Drivezy also follow the same business model and have hit a similar problem in making payments.
Tech policy experts and investment bankers told the paper they expect vendors to take up the matter in civil courts – for which Oyo’s current case could act as a precedent.
"Amassing voluminous litigation arising out of violations of contractual obligations, in a determined manner on a pan India level, belies malfunctioning and mismanagement at the highest level. The order of disclosure of assets in such circumstances sets a precedential tone in the public interest to ascertain accountability of mighty corporates against the defenceless generalia," a lawyer, who looks at arbitration and corporate law said.
Lawyers agreed that startups have in the past inflated balance sheets to build valuations and will be put in “complex position” when asked to list out details by courts – which may hurt these companies in the long-run if the information is made public.