The Bombay High Court has refused to let Kotak Securities reclaim profits earned by a trader after a technical glitch in its trading system briefly inflated his available margin, ruling that a broker cannot profit from its own mistake or deny gains earned through a client’s trading skill and risk-taking.
Upholding an arbitral award, the Court allowed trader Gajanan Ramdas Rajguru to retain approximately ₹1.75 crore that he made from futures and options trades executed during a short window on July 26, 2022. At the time, his actual margin balance stood at just over ₹3,100. A system malfunction, however, reflected an inflated margin, enabling him to place high-value trades running into nearly ₹95 crore.
Those trades eventually closed with a substantial profit. Kotak Securities initially credited the gains to the trader’s account, charged interest on the excess exposure and recovered statutory levies. It later reversed the profit, arguing that the trades were executed on an erroneous margin and that permitting the trader to keep the money would amount to unjust enrichment.
That argument did not find favour with the High Court.
Dismissing the brokerage’s challenge under the Arbitration and Conciliation Act, the Court drew a clear distinction between the source of the trading opportunity and the outcome of the trades themselves. The incorrect margin reflection, it held, merely opened a door to the market; what followed depended entirely on the trader’s decisions and appetite for risk.
The Court rejected the claim that margin credit could be treated as “goods” capable of being returned, observing that money and actionable claims fall outside that definition. Instead, the erroneous margin was likened to a temporary financial accommodation — an opportunity to trade, not a guarantee of profit.
Turning Kotak’s unjust enrichment argument on its head, the Court noted that had the trades resulted in losses, the broker would have had little hesitation in recovering those losses from the client. The principle that no one should benefit from their own wrong, the Court said, applied squarely to the broker whose systems failed.
The judgment was particularly critical of Kotak’s risk management response. Despite detecting no immediate red flags, the broker allowed trading to continue, issued contract notes and credited profits before reversing course. The Court observed that there was material to suggest that risk control protocols were not promptly or adequately invoked to contain the fallout from the system malfunction.
In clear terms, the Court held that the trader bore the risk of loss and earned the reward through his own market skill. The inflated margin did not create the profit; it merely enabled participation in the market.
With these findings, the High Court upheld the arbitral award directing payment of ₹1.75 crore with interest and permitted the trader to withdraw the amount deposited earlier pursuant to interim orders, bringing the dispute to a close.
