NEPSE trading

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By Dipesh Ghimire

System Glitch Turns Into Legal Milestone for Retail Traders in India

System Glitch Turns Into Legal Milestone for Retail Traders in India

By, Rajan Subedi

An unusual trading incident from India’s derivatives market in 2022 has evolved into a landmark legal precedent, reshaping how responsibility is viewed in broker–client relationships. What began as a technical error at a brokerage firm ultimately led to a court ruling that strengthened the rights of retail traders against large financial institutions.

The case revolves around Gajanan Rajguru, a small retail trader whose account held a modest balance of just ₹3,175. Despite the limited funds and the absence of margin or collateral, his trading account was suddenly granted an unusually large exposure limit—nearly ₹40 crore—due to a technical malfunction in the system of Kotak Securities.

According to court records, the trader neither requested nor authorized this limit. The brokerage’s internal system error enabled the limit automatically, and the firm went a step further by allowing futures and options (F&O) trades using that exposure. Market observers noted that permitting such trades without adequate margin runs counter to regulations set by SEBI, India’s securities regulator.

Once the positions were taken, the market initially moved against Rajguru. Within a short span, the trades reflected substantial paper losses, running into tens of crores, with an immediate visible loss of several lakhs. At that stage, legal experts argue, the brokerage would have had no hesitation in holding the trader responsible for the loss, despite the exposure originating from its own system failure.

However, the market soon reversed direction. Within roughly 20 minutes, prices swung sharply in Rajguru’s favor, transforming the risky positions into a massive gain. The total profit touched around ₹175 crore, an amount unimaginable for a trader who had started the session with a few thousand rupees. Sensing the volatility, Rajguru promptly exited all positions and locked in the gains.

The dispute surfaced when the brokerage refused to credit the profit, citing the technical glitch as the reason. The firm argued that since the exposure limit was enabled by mistake, the resulting gains could not be considered valid. This position drew criticism for its apparent inconsistency—profits were rejected, while losses under the same circumstances would have been enforceable.

Rajguru challenged the decision in court, contending that trades executed on the broker’s own platform, under limits provided by the broker, must be treated as legally binding. The court agreed, ruling that a system error on the broker’s side cannot be transferred to the client. If the broker was prepared to enforce losses, it was equally obligated to honor profits.

In its judgment, the court directed Kotak Securities to pay the entire profit amount to the trader. Legal analysts describe the ruling as a turning point, emphasizing that brokers bear full responsibility for their technological infrastructure and internal controls.

Beyond India, the case has drawn attention from traders and regulators in other markets, including Nepal. It underlines the importance of transparency, documentation, and regulatory compliance in modern trading systems. More significantly, it reinforces a core principle of market fairness: a trade cannot be selectively invalidated based on its outcome.

For retail traders, the verdict sends a powerful message—while trading risks remain high, especially in derivatives, the law can offer protection when broker negligence is clearly established.

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