FHRAI Urges Sebi Again To Suspend OYO's IPO Process

Hospitality industry body FHRAI on Thursday again requested market regulator Sebi to suspend OYO's IPO process, citing non-disclosure of an investigation against the hotel chain for tax evasion, an allegation which the company has strongly denied. In a letter to the chairman of Securities and Exchange Board of India, Federation of Hotel & Restaurant Associations of India (FHRAI) Secretary-General Jaison Chacko said, "Oyo has failed to meet such threshold of disclosure to merit an approval from Sebi for an initial public offering (IPO)". 

Earlier in October, FHRAI had urged Sebi to suspend OYO's IPO process, drawing attention to irregularities, such as being engaged in anti-competitive business practice and inadequate disclosures of critical court cases, among others, in its draft red herring prospectus (DRHP).

OYO had, however, strongly refuted it, terming FHRAI's allegations as "ill-informed, manufactured and baseless lies". In its latest letter to Sebi, FHRAI claimed that the Directorate General of GST Investigation (DGGI) has "booked a case of evasion of service tax/GST against M/S Oravel Stays Pvt Ltd (which runs OYO) and its group companies".

"Furthermore, some members of FHRAI have received notices from the CGST department to join the investigation and produce documents in relation to their transactions with OYO," it added. Stressing that this information has not been disclosed by OYO in its DRHP, FHRAI said, "Such non-disclosure is a clear breach of OYO's obligations and therefore on that ground alone, OYO's DRHP deserves to be rejected".

The hospitality industry body also asked Sebi to initiate appropriate penal proceedings against OYO "for willfully failing to disclose such information in its DRHP".

When reached out for comments, an OYO spokesperson said, "We strongly deny these allegations. There is no tax evasion by the company. To date, there is no tax demand against the company. Being a responsible law-abiding company, we cooperate with the government agencies for all the information and documents as sought by them".

Claiming that OYO has encouraged better tax compliance for its hotel partners, the spokesperson said, "Any hotel being onboarded with OYO has to follow formal processes, maintain paperwork and adhere to the regulatory requirements". FHRAI, however, claimed that OYO and its management are currently being investigated by numerous investigative agencies for alleged violations of laws and insisted that "without adequate disclosures and at a time when multiple investigative agencies are investigating OYO, a company cannot be permitted to raise funds from the general public".

Referring to a pending appeal in the Supreme Court against an order of the NCLAT permitting the withdrawal of corporate insolvency resolution process against OYO Hotels and Homes Pvt, FHRAI said "...no company can be permitted to go ahead to raise additional funds from investors since the outcome of the said appeal has a direct impact on the valuation of the company". Resultantly, the letter said, "Sebi must stay OYO's IPO in order to protect consumer interest".

In October this year, OYO had filed preliminary documents for Rs 8,430-crore initial public offering (IPO), as it joined the rush of technology unicorns looking to capitalise on the rally on stock exchanges.