F&O trader earns Rs 1.75 crore profit in 20 minutes with accidental Rs 40 crore margin money due to a tech glitch; Bombay HC allows him keep the profit, here's why

Advocate Sandeep Pandey
Jan 2
16 min read

Synopsis

Rs 40 crore margin glitch helps F&O trader earn Rs 1.75 crore in 20 minutes; Bombay HC says he can keep it. The Bombay High Court had ruled that profits earned by a trader using mistakenly provided margin money due to a tech glitch belong to the trader, not the broker. This is an interim judgement.

Last Updated: Jan 02, 2026, 07:02:00 AM IST

On December 3, 2025, the Bombay High Court had ruled that any profits made by a stock trader by using mistakenly provided trade margin money due to a tech glitch in the broker’s system cannot be treated as ‘unjust enrichment’. This order is an interim judgement as on December 24, 2025 the Bombay High Court had accepted the stock broker (Kotak Securities) appeal and decided to hear their arguments on February 4, 2026.

Bombay High Court said on December 24, 2025: "Post the matter on 4th February 2026. Till then the interim order granted by the learned Single Judge under paragraph 35 of the judgment delivered in Commercial Arbitration Petition No.788 of 2024 shall continue."

In this case, the trader received a Rs 40 crore margin due to a tech glitch and he used it to trade in future and options (F&0). He earned a net profit of Rs 1.75 crore in just 20 minutes.

The Bombay High Court observed that the trader was shown margin money available and he used this opportunity to trade in future and options (F&O) by using his own skill and risk-taking ability, meaning the profit belongs to him and not the stock broker.

Kotak Securities argued that they had erroneously credited the margin of about Rs 40 crore and thus any profit derived from this money should belong to them. The Bombay High Court said that this money did not automatically lead to profits for the trader. The trader initially suffered a loss of Rs 54 lakh and thereafter got Rs 2.38 crore profit, resulting in a net profit of Rs 1.75 crore.

The Bombay High Court pointed out that Kotak Securities did not suffer any loss due to the erroneous provision of margin to the trader. Instead, they were trying to unjustly benefit by keeping the profits earned by the trader through his own skills and risk-taking abilities on a specious plea that the profit was earned by using Kotak Securities’ margin.

The Bombay High Court remarked that in a reverse scenario, Kotak Securities wouldn’t have waived their claim for recovery of losses just because those losses were due their mistake of providing extra margin to the client.

The Bombay High Court said: “Petitioner (Kotak Securities) thus wants to enrich itself for its own mistake.”

The Bombay High Court also said that the trader used his own skills and took risks to make profits and just having the opportunity did not guarantee him any profit. If the trader incurred losses using Kotak Securities’ money, then he would have been liable to repay the losses to them.

The Bombay High Court said: “It cannot be that the Respondent (trader) would only be liable to repay the amount of losses but cannot be permitted to retain the profits.”

The Bombay High Court said that there cannot be a win-win situation for the Petitioner (Kotak Securities), where it would recover losses from the Respondent (trader) but retain the whole profit earned by Respondent (trader) on a specious plea that the profit was earned by using Petitioner’s (Kotak Securities) margin.

Typically, the Bombay High Court said that they wouldn’t support trading with someone else’s money in the stock exchange and in this case the trader took risks with Kotak Securities margin money. However, it’s not the case that the trader stole from Kotak Securities. The entire incident happened because Kotak Securities erroneously made this huge sum of money available to the trader.

Additionally, Kotak Securities tried to settle the case with the trader by offering him Rs 50 lakh in exchange for him leaving the claim of Rs 1.75 crore profit. The trader rejected this offer.

Kotak Securities’ also argued before the court that this case should go in their favour to maintain the sanctity of the risk management system.

The Bombay High Court said Kotak Securities carries the flag of maintaining the sanctity of the risk management system. However, they first made voluntary attempts to settle the matter by offering to share part of profits with the trader. And now it desires to do so by urging this court to set aside the award to retain the entire profit earned out of the trades, which its own system permitted.

The Bombay High Court pointed out besides its own system failure, Kotak Securities seemingly failed to take adequate and timely measures to mitigate the consequences arising out of the malfunctioning system. There’s enough evidence to show that Kotak Securities did not invoke risk control protocols.

How did the stock market F&O trade happen?

Mr. Rajguru (trader) had opened a trading cum demat account with Kotak Securities in October 2021 and chose to use the online trading facility.

On July 26, 2022, Rajguru had Rs 3,175.69 in his stock broking account. However, due to a technical glitch in Kotak Securities’ system, he received an unexpected huge credit in his stock broking account. Seizing the opportunity of this high credit in his margin money, he executed trades of approximately Rs 94.81 crore in future and options (F&O) contracts within 20 minutes, by which time, Kotak Securities had fixed the glitch.

To pull off such a huge Rs 94-crore worth F&O trade, Rajguru needed a margin of Rs 40 crore, but he only had Rs 3175.69. In this F&O trade, Rajguru made Rs 1.75 crore profit. In the evening, he even received a contract note for the trades executed in his account and his account was credited with Rs 1.83 crore (1,83,51,383.43).

However, shortly after, Kotak Securities reversed the Rs 1.75 crore (1,75,01,672.92) from his account after adjusting the statutory charges on the ground that the trades were executed on erroneous margin. The next day Rajguru visited Kotak Securities’ office to seek a possible friendly resolution of the issue. However, there was no resolution.

Thus he filed a complaint with the investors’ services cell of the National Stock Exchange on September 15, 2022. The GRC of NSE heard the complaint and passed an order on October 19, 2022 rejecting the claim. The GRC order was challenged by Rajguru before the Arbitral Tribunal by filing an Arbitration Application on November 25,2022. The Arbitral Tribunal passed an Award on June 1, 2023 rejecting his claim.

He then filed an appeal in the NSE Appellate Forum and here he won the case. The Appellate Tribunal ordered Kotak Securities to return him Rs 1.75 crore with 12% interest from July 26, 2022. Based on this order, NSE debited Kotak Securities account with Rs 2.01 crore from its exchange dues account. Kotak Securities filed an appeal in Bombay High Court against this order.

On December 3, 2025, Rajguru won the case and Kotak Securities lost the case. Advocates Nitesh V. Bhutekar with Aaditya Mahamiya represented him.

Why did he win the case?

Apurva Agrawal, Founder, Universal Legal, Mumbai, said to ET Wealth Online: The court’s reasoning was largely factual and commercial.

First, the money was not directly credited to the client’s bank account. What appeared incorrectly was a higher trading margin, which merely allowed the client to place larger trades. The profits were made only because the client took market risk, made trading decisions, and the trades moved in his favour. The gains were therefore seen as a result of market activity, not as a free or automatic benefit arising from the glitch.
Second, the broker itself treated the trades as valid and binding at the time. Contract notes were issued, brokerage and statutory charges were collected, and the positions were allowed to run. Only after the trades turned profitable did the broker seek to recover the gains. The court found it difficult to accept that a broker could approve trades, earn fees, and later claim the profits were unjust.
Third, the broker failed to show that it had suffered an actual financial loss due to the error. Without clear loss on one side and with genuine trading risk on the other, the court found no basis to apply unjust enrichment principles.

Bombay High Court analysis and discussion

The Bombay High Court in its judgement dated December 3, 2025(case no. 2025:BHC-OS:23272) says that the short but interesting issue that arises for consideration is whether Kotak Securities can pocket profits earned by Rajguru through trades executed by him using his own skill and risk, but by making use of margin erroneously reflected in his trading account on account of a glitch in Kotak Securities’ system.

For F&O, 40% margin money is needed

SEBI has prescribed certain risk management tools, which are required to be adopted by exchanges as well as by brokers so that credit risk emerging from the trading activities is taken care of and integrity of the system is not at risk.

Accordingly, SEBI has prescribed maintenance of ‘margins’, under which a client has to deposit collateral which may be in the form of cash or fixed-deposits or bank guarantees or even securities or a mix of all of them.

Margin money is an initial deposit required to open a leveraged trading position. SEBI and the exchanges have prescribed that at the time of enrollment as a constituent trading member, each client must be made aware of risk disclosure documents.

As per SEBI circular dated July 20, 2020, a broker has to collect the prescribed/applicable margin upfront. Thus, upfront margins are required to be collected from the clients in advance.

For trade in the derivative markets the amount of margin is small relating to the value of derivative contracts. It appears that for F&O contracts, the margin money requirement is 40% of the proposed trades to be executed.

Trader was lucky with the money erroneously given and made profits

The Bombay High Court said that in the present case, Rajguru (trader) has utilized the opportunity made available to him in the form of increased margin for the purpose of executing trades in F&O contracts and in the process, was lucky in earning profits (gross profit of Rs.1,83,51,383.43/- and net profit of Rs.1,75,01,673).

Since the trades executed by Rajguur are on the basis of Kotak Securities’ margin, erroneously made available to him, Kotak Securities claims that the profits made by him are the property of Kotak Securities.

The issue before the GRC, first Arbitral Tribunal and Appellate Arbitral Tribunal was whether profits earned by the Respondent (Rajguru) using his skills and grabbing the opportunity made available to him due to a technical glitch in the Petitioner’s (Kotak Securities) system, would benefit the Respondent or is the entitlement of the Petitioner.

GRC and the first Arbitral Tribunal ruled in favour of the Petitioner (Kotak Securities) and rejected the claim of the Respondent (Rajguru) invoking the theory of unjust enrichment.

The Appellate Arbitral Tribunal has held that the action of the Petitioner (Kotak Securities) in holding on to the money earned by the Respondent (Rajguru) was not supported by provisions of any rules and regulations of the exchange.

The Appellate Arbitral Tribunal took into consideration the terms and conditions of margin trading facility on the website of the Petitioner (Kotak Securities) and held that the approach of the Petitioner (Kotak Securities) lacked bonafides as it did not show due diligence and intentionally and deliberately ignored its own Rules and Regulations and failed to even call up the Respondent (Rajguru) and expected him to tell Kotak about the erroneous margin.

Kotak Securities placed reliance on Contract Act

Kotak Securities claims that since the resultant profits emanate out of their margin money, such profits become their property. Reliance is placed on provisions of Sections 71 and 163 of the Contract Act.

71.Responsibility of finder of goods.— A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee

163. Bailor entitled to increase or profit from goods bailed.— In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.

Illustration: A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A. 164

The Bombay High Court said that the illustration below Section 163 explains the concept of bailor’s entitlement to profit in more simplified terms.

If an owner leaves a cow in the custody of another person and the cow has a calf, the person with whom the cow is left must return not just the cow but also the calf to the owner.

The Bombay High Court said: “Since the present case does not involve Petitioner (Kotak Securities) voluntarily providing or making available the margin to the Respondent (Rajguru), the provisions of Section 71 of the Contract Act are also pressed into service. Under Section 71, even a finder of goods belonging to another person and taking the goods into his custody is made subject to some responsibility as a bailee.”

The Bombay High Court said that Kotak Securities has sought to apply the combined effect of provisions of Section 71 (finder of goods) and Section 163 (bailee’s duty to return profits) for the purpose of claiming profits earned by Respondent by using margin money of the Petitioner.

However, the issue is whether margin made available by Kotak Securities to Rajguru can be treated as ‘goods’ for application of provisions under Sections 71 and 163 of the Contract Act. Indian Contract Act does not separately define the term ‘goods’.

Section 2(7) of the Sale of Goods Act, 1930 defines the term ‘goods’ as under: (7) “goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

The Bombay High Court said that under the definition of the term ‘goods’, every form of movable property other than actionable claims and money is included. The term ‘goods’ also includes stock and shares.

Bombay High Court said: “Since definition of the term ‘goods’ does not include money, the margin money provided by Petitioner (Kotak Securities) or made available to the Respondent (Rajguru) would not strictly fall into the definition of the term ‘goods’. Making available margin means essentially making available money for effecting trades on the platform.”

The margin money so made available to a client/investor becomes usable as consideration for trades executed in the stock market. The margin is required to be maintained in the form of cash, fixed deposit receipts, bank guarantee or even shares.

The Bombay High Court said: “In that sense, making available margin is akin to handing over money for execution of trades. Since the term ‘margin’ virtually means monetary security, the same would not be covered by definition of the term ‘goods’. Therefore, the provisions of Sections 71 and 163 of the Contract Act would not strictly apply to the transactions in question.”

The Bombay High Court said that reflection of undue margin in the account of a trading member is akin to making available mere opportunity to trade.

“It is like making available money for the execution of trades. It can also be treated as loaning money temporarily. This appears to be the reason why Petitioner (Kotak Securities) charged interest on the margin money made available to Respondent (Rajguru). It is another thing that it was advised to reverse the entry of interest subsequently, possibly for staking claim to profits earned by use of the margin.”

Therefore, Bombay High Court said that it becomes difficult to place the transaction of reflection of margin on trading account on the same pedestal as that of finder of goods under Section 71 read with Section 163 of the Contract Act.

Trader got Rs 54 lakh loss and then Rs 2.38 crore profit

The Bombay High Court said that they find the claim of the Petitioners (Kotak Securities) to retain profits earned by the Respondent (Rajguru) through trades executed by him to be wholly unjustifiable.

“There is no doubt to the position that making available margin of about Rs 40 crore to the Respondent (Rajguru) was a fault/mistake of the Petitioner (Kotak Securities). What is done by the Respondent (Rajguru) is to make use of the undue opportunity erroneously made available to him. Mere exploitation of subject opportunity automatically does not result in any profits for him.”

The Bombay High Court said that the margin reflected in his account merely opened doors for him to trade on the exchange platform. The opportunity came with risk of incurring losses or to earn profit, depending on Respondent’s skill.”

As a matter of fact, Rajguru initially incurred losses to the tune of Rs 54 lakh but later managed to earn substantial profit of Rs 2.38 crore, thereby resulting in actual profit of Rs 1.83 crore.

The Bombay High Court said: “The Respondent (Rajguru) thus used his own skills and risks for earning the profits and mere provision of opportunity did not automatically result in profits for him. If Respondent (Rajguru) was to suffer losses in the trades by using Petitioner’s margin, the Respondent would have been liable to repay the amount of losses to the Petitioner (Kotak Securities). It cannot be that the Respondent (Rajguru) would only be liable to repay the amount of losses but cannot be permitted to retain the profits.”

The Bombay High Court said that similarly, there cannot be a win-win situation for the Petitioner (Kotak Securities), where it would recover losses from the Respondent but retain the whole profit earned by Respondent (Rajguru) on a specious plea that the profit was earned by using Petitioner’s margin.

No unjust enrichment by trader

The Bombay High Court said that the theory of unjust enrichment pressed into service by the Petitioner (Kotak Securities) does not appeal to this Court.

Bombay High Court said: “Earning of profits by Respondent (Rajguru) through execution of valid and legal trades cannot be treated as unjust enrichment. If there is unjust enrichment in the present case, it is by the Petitioner. It is the Petitioner (Kotak Securities) who committed the mistake in making available margin for the Respondent. It initially charged interest on such margin money. It has also recovered various levies and fees in respect of trades legitimately executed.”

The Bombay High Court said that Kotak Securities has not suffered any loss on account of erroneous making available of margin to the Respondent (Rajguru, trader).

Bombay High Court said: “However, it wants to unjustly enrich itself by retaining the profits earned by Respondent through his own skills and risks on a specious plea that earning of profits was through Petitioner’s margin. In a converse situation, Petitioner would not have given up the claim for recovery of losses on the ground that losses were suffered due to its error of making available margin to the client. Petitioner thus wants to enrich itself for his own mistake.”

Court rejects Kotak Securities’s risk management angle

The Bombay High Court said that the Petitioner’s (Kotak Securities) contention that the Award needs to be set aside for maintaining sanctity of the risk management system appears to be attractive in the first blush.

The Bombay High Court said: “However, the same is misplaced. The Petitioner, who is carrying the flag of maintaining the sanctity of the risk management system, first made voluntary attempts to settle the matter by offering to share part of profits with Respondent. Now what Petitioner desires to do by urging this Court to set aside the Award is to retain the entire profits earned out of the trades, which its own system permitted.”

The Bombay High Court said that if the Award is set aside to ensure the sanctity of the system, Petitioner (Kotak Securities) would retain the profits, which situation this Court is unable to uphold.

The Bombay High Court said: “Apart from its own system failure, Petitioner apparently did not take the adequate and timely measures to mitigate the consequences arising out of malfunctions of the system. There is sufficient material on record to indicate that the Petitioner did not invoke risk control protocols.”

The Bombay High Court said:

Far from warning Respondent (Rajguru, trader) that it was unauthorisedly trading on erroneous margin, Petitioner (Kotak Securities) issued contract notes upon execution of trades, deducted levies and even charged interest for use of margin. It even credited the net profit in Respondent’s (Rajguru, trader) ledger.
It later took a volte face and reversed the entry. Now it raises a specious plea that it must be permitted to retain the profits so that the sanctity of risk management system is maintained.
Considering the peculiar circumstances of the case I am unable to accept the contention raised on behalf of Petitioner (Kotak Securities).

Bombay High Court judgement

The Bombay High Court said that the present case depicts a unique conundrum, where Respondent has profiteered on Petitioner’s monies.

Ordinarily, Courts would not have encouraged the activity of trading on someone else’s monies on a stock exchange. Respondent has gambled on Petitioner’s margin money. However, it is not that Respondent has stolen the monies of Petitioner.

Admittedly none of the acts of Respondent are responsible for reflection of erroneous margin in his trading account. There is no dispute to the position that Petitioner’s system is solely responsible for making available the margin money to the Respondent, who has used his skills to make most of the opportunity and has earned profits. Someone will have to be given those profits.

Given that there is system glitch attributable to Petitioner coupled with failure to invoke adequate and timely risk protocols, Petitioner cannot be permitted to retain the profits. On the other hand, Respondent is not responsible in any manner for development of system glitch and has used his own skills and has taken the risk in executing the trades.

The Bombay High Court said: “Therefore if only one out of the two parties can be permitted to retain the profits, it would be Respondent and not Petitioner.”

Bombay High Court said: ”Considering the above position, the Appellate Arbitral Tribunal has also held that profits need to be handed over to Respondent. May be that alternate view of handing over profits to Petitioner is also possible. However, mere possibility of different view cannot be a ground for setting aside the Award.”

The Bombay High Court said:

It is not that the findings of Respondent’s entitlement to profits is something which no fair minded person can ever record in the facts and circumstances of the case. Even otherwise, this Court is unable to accept the position that Petitioner (Kotak Securities) would commit a mistake and though it has not suffered any losses out of that mistake, it would enrich itself by claiming profits out of the trades executed by Respondent.
For trades effected by Respondent (Rajguru, trader), Petitioner would still earn brokerage and would benefit to some extent. Therefore this Court is not inclined to take a view different than the one taken by the Appellate Arbitral Tribunal.

The Bombay High Court said that considering the overall conspectus of the case, they are am of the view that the Appellate Arbitral Tribunal has taken a plausible view by not permitting the Petitioner (Kotak Securities) to retain the profits earned by the Respondent (Rajguru) just because such profits are outcome of opportunity made available to him by the Petitioner.

Judgement:

In fact, I (Bombay High Court) am of the view that the view taken by the Appellate Arbitral Tribunal is the correct view. There is no perversity in the findings recorded by the Appellate Arbitral Tribunal.
The impugned Award cannot be said to be in conflict with public policy of India or in contravention of fundamental policy of Indian law.
The Award also does not suffer from any patent illegality. The Award is unexceptionable warranting dismissal of the Petition.
Though the Petition is being dismissed, I am not inclined to impose any costs on the Petitioner while dismissing the Arbitration Petition as Appellate Arbitral Tribunal has already directed payment of 12% interest on the awarded sum from July 26, 2022.
In my view therefore, no case is made out by the Petitioner for interference in the impugned Award. The Arbitration Petition must fail. It is accordingly dismissed. Respondent shall be entitled to withdraw the entire amount deposited in this Court along with accrued interest. With dismissal of Petition nothing would survive in the Interim Application and the same is also disposed of.”

Paragraph 35 of the December 3, 2025 judgement said: "After the judgment is pronounced, the learned counsel appearing for the Petitioner prays for stay of the directions for withdrawal of the deposited amount by the Respondent for a period of five weeks. The request is opposed by the learned counsel appearing for the Respondent. It is directed that while the Respondent can commence the process for withdrawal of the deposited amount, the Prothonotary & Senior Master shall not actually release the deposited amount in favour of the Respondent for a period of five weeks."

( Originally published on Jan 01, 2026 )