DEFAULT ACTION

Will the recent legal dispute between OYO Hotels & Homes Pvt and a Gurgaon-based hotelier cast a shade on the minimum business guarantee- based FOCO model in the hospitality industry?

- PRANITA BHOSALE

Recently, a dispute over an INR 16 lakh payment between OYO Hotels & Homes Pvt. and Gurgaon-based Rakesh Yadav, owner of Yellow White Residency Hotel led to the initiation of insolvency proceedings against the OYO subsidiary.

The National Company Law Tribunal (NCLT) Ahmedabad found that the petition by Yadav fulfilled the conditions under the Insolvency and Bankruptcy Code for admitting an insolvency petition initiated by an operational creditor.

Abhay Vohra, Partner at Burgeon Law elaborated whether this incident could have an impact on the leasing of hotels with a minimum business guarantee (MBG), which had emerged as a promising business model. He also explained how hospitality start-ups with MBGbased FOCO business models will have to come up with industry-centric innovations while desisting from keeping the MBG amounts.

What is your take on Gurugrambased Rakesh Yadav initiating insolvency proceedings against the $9 billion OYO Hotels over non-payment of dues?

It is indeed a peculiar case as far as the facts of the matter are concerned. On one hand, the Petitioner’s claim is based on nonpayment of “benchmark revenue” of INR 4.5 lakhs for months ranging from July to December 2019 amounting to total debt of INR 16 lakhs only. On the other hand, OYO Hotels and Homes’ major contention has been that the said business of the company was transferred to “My Preferred Transformation and Hospitality Ltd.” w.e.f. 01.06.2019 another company of the OYO group and that the Petitioner was also informed of the same.