On 25th November, 2015, Oravel Stays Private Limited (Oyo) entered into a term sheet with Zostel Hospitality Private Limited (Zostel), for acquiring its assets including property data, customer data, intellectual property rights, software etc.1 The term sheet explicitly stated in its preamble that it will not be binding. The term sheet also stated that parties were to mutually agree that certain documentation for the purposes of the acquisition, such as, the share subscription/ merger framework agreement, the shareholder's agreement and assest/ business transfer agreement, collectively known as, Definitive Agreements, would be executed along with the due diligence that Oyo was supposed to conduct on Zostel.

Zostel alleged that despite meeting all its obligation as per the term sheet, Oyo failed to formally conclude the proposed acquisition. Oyo, having conducted its due diligence, claimed that momentous liabilities and unpaid dues came to light. Oyo also alleged that no definitive agreements were executed to consummate the transaction and that the said term sheet was not binding. The issue in front of the Arbitral Tribunal was that, whether or not, Oyo has deprived Zostel of the benefits envisioned under the Term Sheet and if Zostel is entitled to claim specific performance of the Term Sheet.

The Arbitral Tribunal observed that the obligations mentioned in the term sheet were in the nature of closing obligations enabling the acquisition by OYO. The same was separated from additional closing actions that were enlisted as part of the Definitive Agreements. Thus, the contents of the Term Sheet negated the contention that the Term Sheet was a non-binding and merely exploratory document. Given that Oyo conducted a Due Diligence on Zostel and had access to sensitive commercial information, created a binding obligation for Zostel to give necessary material information to Oyo. Thus, the entirety of the term sheet could not be termed as non-binding. The parties had already agreed upon the form of the Definitive Agreements and met most obligations for the transaction. The conduct of the parties pursuant to the execution of the Term Sheet suggests that the parties had agreed to complete the proposed acquisition. Lastly, the Term Sheet contained a framework for the acquisition, subject to which the parties were required to execute the Definitive Agreements. Additionally, certain key closing obligations were also enlisted, which suggests that the parties by their conduct and by fulfilling their conditions had waived the non-binding preamble of the Term Sheet. Hence, in conclusion, the Tribunal held that the Term Sheet was a binding contract between the parties.

Enforceability of a Term Sheet

A Term Sheet, also known as 'letter of intent' or 'side letter', contains declarations made by parties, which are to be accomplished eventually once a business exchange has taken place. One of the first cases to speak about the enforceability of Term Sheet, was the British case of Barbudev v. Eurocom Cable Management Bulgaria EOOD and Ors.2, that created a distinction between a) intention to create legal relations and b) to enforce the said relations, when determining whether terms in a letter of intent were enforceable legally. The court said that, although the letter written in legal language, could be said to create a legal obligation, the letter can only be seen as an agreement to agree and will not be legally enforceable. It is merely an instrument by which parties agreed to negotiate with claimants in good faith. In India, the Supreme Court has held that where documents or letters relied on as constituting a further contract is a condition or term of the bargain, there will be no enforceable contract.3 Similarly, in the case of Rajasthan Co-op Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service Pvt. Ltd.4, the Supreme Court of India held that a Letter of Intent, merely expresses an intention to enter into a contract, there is no binding legal relationship between the parties. In the case of Dresser Rand S.A v. Bindal Agro Chem Ltd. and K.G Khosla Compressors Ltd.5 , the Supreme Court held that a letter of intent only shows a party's intent to enter into a contract in the future and should not be binding on parties.  In another case it was held that ancillary agreement for effectuating sale, is not fundamental to the contract to sell, therefore the manner and mode in which it is carried out will not necessarily amount to a sale of contract.6


Even though the said Arbitral Tribunal Award has not been enforced as yet, the case of Oyo v. Zostel, brings to notice that obligations mentioned in a Term Sheet, can be considered to be enforceable on a case-to-case basis, depending on the facts and circumstances of the case, including performance and non-performance by parties to the Agreement. In the case of Oyo, even though the term sheet executed on 25.11.2015, specifically mentioned in its preamble that it will not be binding, the tribunal considered it to be binding, valid and enforceable on the grounds that certain obligations mentioned in the Term Sheet, were executed and performed by Zostel. The same, goes against the inherent jurisprudence of contract law, as mentioned above, wherein courts have agreed on various occasions that terms in a letter of intent do not make the contract enforceable. The Oyo v. Zostel case, thereby reminds one to be mindful of one's conduct pursuant to the execution of a non-binding term sheet so as to ensure that definite intention to complete transaction or implementing certain obligations, which make the inherent transaction valid, does not take place. While, in the current case, as it is a decision given by the arbitral tribunal, it would be binding on the parties in the arbitration agreement, however, it goes without saying that one should be mindful of what obligations one mentions, when drafting a Term Sheet.


1 https://www.livelaw.in/pdf_upload/zostel-v-oravel-award-dt632021-390236.pdf

2  [2012] EWCA Civ 548, 27 April 2012

3 Kollipara Sriramulu v. T. Awashtha Narayana, AIR 1968 SC 1028

4 Civil Appeal No. 2679 of 1992, Decided on 17.09.1996

5 AIR 2006 SC 871

6 Gostho Behari Sirkar v. Surs' Estates Ltd. , AIR 1960 Cal 752

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