Mumbai4 minutes ago
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A technical glitch in Kotak Securities’ app turned an ordinary trader into a millionaire. But the real battle was won in the NSE Appellate Forum and the Bombay High Court.
The court said – If due to the mistake of the broker, more margin money appears in a trader’s account and he earns profit due to his own wisdom, then the trader will have the right on that money.
The court rejected Kotak Securities’ argument that the profits were ‘ill-gotten gains’. Kotak has been asked to return the money with 12% interest.
There was ₹ 3,175 in the account, 40 crores started appearing
A trader named Rajguru had a demat account with Kotak Securities. On July 26, 2022, there was only ₹ 3,175.69 money in his account. But due to a technical glitch in the system, margin money of ₹40 crore suddenly started getting reflected in his account.
Rajguru did not let this opportunity slip away. He used his trading skills and made futures and options (F&O) trades worth around ₹94.81 crore in the next 20 minutes.
This image is symbolic. It has been generated from AI.
20 minutes risk and net profit of ₹1.75 crore
Rajguru’s luck and understanding supported him. In these 20 minutes, he initially suffered a loss of ₹54 lakh, but later he earned a gross profit of ₹2.38 crore.
Their net profit after deducting tax and other charges was ₹1.75 crore. In the evening, Kotak also issued him a contract note and credited ₹1.83 crore to his account. But as soon as the broker realized his mistake, he withdrew the money.
Kotak said- ‘The cow is ours and the calf is also ours’
Kotak Securities made an interesting argument in the Bombay High Court. He said that this case is like if someone owns a cow and if he gives up a calf, then the owner of the cow will have the right on the calf. Kotak said that since the profit was made from their use of ₹40 crore, that profit also belonged to them.
This image is symbolic. It has been generated from AI.
High Court said- If there was a loss, would the broker have tolerated it?
The Bombay High Court rejected Kotak’s arguments outright. The Justice commented:
- Profits were not guaranteed: Just having money does not result in profit. The trader used his skill and risk. If it had incurred losses, would Kotak Securities have waived those losses? Not at all, then they would have recovered from the trader.
- Cannot get double benefit: The court said that it cannot be the case that when there is a loss, the trader pays and when there is a profit, he hires a broker. There cannot be a ‘win-win’ situation.
- It was the broker’s fault: It was Kotak’s fault in the system, Rajguru had not committed any theft.
Broker had given an offer of ₹ 50 lakh
During the hearing of the case, it also came to light that Kotak Securities had tried to settle with Rajguru. The broker had offered Rajguru to give up his claim of ₹1.75 crore and take ₹50 lakh in exchange. Rajguru had rejected this offer.
The dispute reached the High Court through NSE
Rajguru first complained to the Investor Service Cell of NSE, where his application was rejected. After this he went to the Arbitral Tribunal and lost there too.
Ultimately the ‘NSE Appellate Forum’ ruled in his favor and asked Kotak to return the money with 12% interest. Kotak had challenged this decision in the High Court.
Legal expert said – this decision is a lesson for brokers
Legal experts believe that this decision is a lesson for brokers. The court made it clear that ‘margin money’ cannot be considered as ‘goods’. The risk in trading was with the trader, hence the reward will also be his. Additionally, the broker itself earned its brokerage on those trades and issued contract notes proving that the trades were valid.
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