Profits from trades executed on erroneously credited margin belong to the client, not the broker, as retention by the broker amounts to unjust enrichment.

SANDEEP V. MARNE, J.

1) The Petition involves an interesting conundrum. Whether profits earned by a person out of an undue trade opportunity can be retained by such person or he must hand over the same to the opportunity giver is the issue which this Court is tasked upon to decide in the Petition. Petitioner erroneously made available to the Respondent, margin for execution of trades in the stock market. Respondent made use of such undue opportunity, took risk, used his skills and earned profits. Petitioner now claims that the profits made by Respondent out of such undue margin belongs to it.

2) The Petition filed by the Petitioner under Section 34 of the Arbitration and Conciliation Act,1996 (Arbitration Act) takes exception to the final Award dated 25 October 2023 passed by the Appellate Tribunal of Arbitrators constituted under the Bye-laws of the National Stock Exchange of India Ltd. (NSE). By the impugned Award, the Appellate Arbitral Tribunal has set aside the order passed by the Grievance Redressal Committee (GRC) as well as the Award made by the lower Arbitral Tribunal. The Appellate Arbitral Tribunal has directed the Petitioner to pay to the Respondent sum of Rs.1,75,01,672.92/- along with interest at the rate of 12% p.a. from 26 July 2022 till realization. The GRC constituted under the bye-laws of NSE had rejected the claim of the Respondent and the order of the GRC was upheld by the lower Arbitral Tribunal. The Appellate Arbitral Tribunal has reversed the orders passed by the GRC and the lower Arbitral Tribunal and has awarded the claim in favour of the Respondent.

3) Brief facts leading to filing of the Petition are stated thus : Petitioner is a registered trading member with NSE and Bombay Stock Exchange for cash and derivative segments and is also a Depository Participant (DP) with both the CDSL and NSDL. Respondent is the client of the Petitioner who had opened Trading Account with the Petitioner in October 2021 and had opted to trade in the markets using online trading facility. On 26 July 2022, Respondent had margin of only Rs.3175.69/-. Due to technical glitch in the system of the Petitioner, Respondent received undue credit in his margin. Taking advantage of receipt of such credit in his margin, Respondent executed trades of approximately Rs.94.81 crores in future and options (F&O) contracts within 20 minutes window by which time, Petitioner rectified the glitch. Such trade would have required margin of about Rs.40 crores as against the actual margin available with the Respondent of Rs.3175.69/-. It appears that the Respondent made profit of Rs.1.75 crores on the basis of such trades executed using erroneous credit of margin. A contract note dated 26 July 2022 was issued to the Respondent for the trades executed in his account and his account was credited with the amount of Rs.1,83,51,383.43/-. However, Petitioner reversed the amount of Rs.1,75,01,672.92/- from the account of the Respondent after adjusting the statutory charges on the ground that the trades were executed on erroneous margin.

4) The Respondent comp