COURTKUTCHEHRY SPECIAL ON LAWS ON “UNJUST ENRICHMENT”
Bombay High Court: Profit from Margin Glitch Not Unjust Enrichment in Kotak Securities Case
Court says trader’s skill and risk-taking, not system error, led to profit
Judgment upholds arbitral award, clarifies brokers cannot reclaim gains from technical glitches
By Our Legal Reporter
New Delhi: December 26, 2025:
In a landmark judgment, the Bombay High Court has ruled that profits earned by a trader due to a technical glitch in Kotak Securities’ trading system cannot be considered “unjust enrichment.” The court emphasized that the gains arose from the trader’s skill, judgment, and risk-taking, rather than automatically from the inflated margin displayed due to the error.
The ruling, delivered by Justice Sandeep V. Marne, dismissed Kotak Securities’ challenge under Section 34 of the Arbitration and Conciliation Act, 1996, and upheld an arbitral award in favour of trader Gajanan Rajguru, allowing him to retain profits of ₹1.75 crore.
Background of the Case
On July 26, 2022, a technical glitch in Kotak Securities’ system erroneously showed Rajguru an inflated trading margin. His actual margin was only ₹3,175.69, but the system reflected a margin that allowed him to place trades worth ₹94.81 crore in futures and options.
Within 20 minutes, Rajguru executed trades and earned a profit of ₹1.75 crore before the error was corrected. Kotak Securities later sought to recover the profit, arguing that it amounted to unjust enrichment.
The dispute went to arbitration under the National Stock Exchange (NSE) byelaws, where the appellate tribunal ruled in favour of Rajguru. Kotak Securities challenged this award in the Bombay High Court.
Court’s Observations
Justice Marne made several important observations:
- Margin is only an opportunity: The availability of margin does not automatically generate profit. It merely enables trading.
- Profit comes from skill and risk: Rajguru’s gains were the result of his trading decisions, not simply the margin error.
- No unjust enrichment: Since the profit was not a direct consequence of Kotak’s mistake, it cannot be reclaimed as unjust enrichment.
- Broker cannot profit from its own mistake: The court noted that Kotak Securities cannot penalize the trader for exploiting a system error when trades were validly executed.
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The court upheld the arbitral award directing Kotak Securities to release ₹1,75,01,672.92 plus 12% interest to Rajguru.
Legal Context
The case hinged on the concept of unjust enrichment, which occurs when one party unfairly benefits at another’s expense. The court clarified that:
- Unjust enrichment requires a direct causal link between the mistake and the benefit.
- In this case, the benefit arose from independent trading decisions, not automatically from the margin glitch.
- The ruling aligns with principles under the Indian Contract Act, 1872, which prevent recovery unless enrichment is unjust and directly linked to another’s loss.
Wider Implications
This judgment has significant implications for the financial markets:
- For Traders
- Provides clarity that profits earned through valid trades, even if enabled by system errors, cannot be easily reclaimed.
- Reinforces the importance of skill and risk-taking in trading outcomes.
- For Brokers
- Highlights the need for robust systems to prevent technical glitches.
- Brokers cannot rely on unjust enrichment claims to recover losses from their own errors.
- For Arbitration
- Strengthens the credibility of arbitral awards under NSE byelaws.
- Shows courts’ reluctance to interfere unless awards are perverse or illegal.
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Expert Opinions
Legal and financial experts have reacted strongly to the ruling:
- Raw Law reported that the judgment reinforces the principle that brokers cannot profit from their own mistakes.
- Bharat Courts noted that the ruling allows traders to retain profits made through valid trades, even if enabled by system errors.
- Market analysts argue that the case highlights the importance of risk management and system integrity in brokerage operations.
Lessons for Investors and Brokers
The case offers important lessons:
- For Investors: Profits earned through valid trades are protected, even if enabled by technical errors.
- For Brokers: Must invest in stronger IT systems to prevent glitches.
- For Regulators: Need to ensure clear rules on handling technical errors in trading platforms.
Conclusion
The Bombay High Court’s ruling in the Kotak Securities case is a landmark in financial law. By clarifying that profits earned due to a margin glitch are not unjust enrichment, the court has reinforced the principle that trading gains depend on skill and risk-taking, not system errors.
The judgment protects traders from arbitrary recovery attempts by brokers and underscores the importance of robust systems, fair arbitration, and judicial clarity in India’s financial markets.
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