Explained: Why did NCLAT dismiss the insolvency proceedings against the OYO subsidiary?

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The insolvency proceedings against OYO Hotels and Homes Pvt Ltd (OHHPL) were dismissed by the National Company Law Appeals Tribunal (NCLAT) despite several hoteliers claiming unpaid debts by the company.

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Why was OYO subject to insolvency proceedings?

OYO was the subject of insolvency proceedings following a claim of Rs 16 lakh filed by a hotelier based in Gurgaon against the company.

The Ahmedabad Magistracy of the National Company Law Court granted the request to open insolvency proceedings in April and appointed an Interim Resolution Professional (IRP) and authorized the IRP to start assembling claims from creditors. OYO, however, said the issue with the operational creditor was a contractual dispute and had nothing to do with the company’s creditworthiness.

OYO founder and group CEO Ritesh Agarwal even said the company made a full payment to the claimant under protest. “We are surprised to learn that the Honorable NCLT has admitted a petition against OHHPL, a subsidiary of OYO for Rs 16 lakh in a contract dispute,” OYO said in a statement, noting that the dispute was not even with the subsidiary that has been admitted to insolvency proceedings.

What were the claims of the other hotels that were operational creditors?

Other hotels, including 46 hotels represented by the Federation of Hotel and Restaurant Associations of India (FHRAI), had claimed that, since the insolvency proceedings had been admitted, they could not be withdrawn without settlement. claims of all creditors under the IBC Insolvency and Bankruptcy Code).

Why did NCLAT allow withdrawal from insolvency proceedings despite unresolved claims from other operational creditors?

The NCLAT has estimated that although usually the withdrawal of an insolvency proceeding against a debtor company requires the approval of 90 percent of the creditors, this only applies to cases where the creditors committee has been constituted. NCLAT noted that the Supreme Court had previously ruled that when a Creditors’ Committee (CoC) has not been formed, “the court may … allow or deny a request for withdrawal or settlement.”

NCLAT had, in an earlier order, suspended the formation of the CoC after OYO’s lawyers claimed that the company was working with the petitioner to reach a settlement and that the insolvency petition was filed against an OYO affiliate. who was not even a party to the contractual dispute. The petitioner who had filed an application to open insolvency proceedings and OYO both stated that they had reached a settlement and sought to withdraw the insolvency proceedings.

Regarding complaints filed by other hotels for non-payment of dues, NCLAT noted: “… before the establishment of the Creditors Committee, the mere filing of a ‘Complaint’ does not constitute default in itself” , adding that a number of hotels that had the claims filed had also sought arbitration with OYO through petitions to other courts.


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