Mumbai, July 1 (AHN) Prism, the parent company of OYO, has flagged its ongoing legal battle with Zostel as a key risk in its draft red herring prospectus (DRHP) filed ahead of its proposed initial public offering (IPO).

In the DRHP, the company said that any adverse outcome in the legal proceedings involving Zostel may materially and adversely affect its business, reputation, prospects, results of operations and financial condition.

It also warned that an unfavorable final decision could result in the issuance or transfer of up to 7 per cent of its shareholding, or the payment of an equivalent monetary value, to Zostel and certain other parties.

"Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our

business, reputation, prospects, results of operation and financial condition, including potential issuance or transfer of up to 7 per cent of our shareholding," it said in its draft paper.

The dispute stems from a non-binding term sheet signed between Prism, Zostel Hospitality Private Limited (Zostel) and certain other parties for the potential acquisition of Zostel's business by Prism.

According to the DRHP, the proposed transaction did not materialise as Zostel claimed it had fulfilled all its obligations under the term sheet, while alleging that Prism failed to complete the acquisition process.

Prism, however, has disputed these claims, maintaining that the term sheet was exploratory and non-binding in nature. The company said no definitive agreements were executed, several commercial terms remained unresolved, and no part of Zostel's business was ever transferred to Prism.

The company further disclosed that an arbitral tribunal had ruled that the term sheet was binding. Prism challenged the award before the Delhi High Court, which set aside the arbitral award after holding that it was in conflict with the public policy of India.

Following the High Court's decision, Zostel filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 before a Division Bench of the Delhi High Court. The matter remains pending.

Prism said that if Zostel ultimately succeeds through a non-appealable court order, the company could be directed to issue or transfer up to 7% of its shareholding, or pay an equivalent monetary value, in accordance with the court's directions.