Demand Draft

Demand draft is discussed in section 85(A) of the NI Act. A Demand draft is an order to pay money drawn at one office of a Bank upon another office of the same bank for a sum of money payable to order on demand.

  • A Demand Draft is payable on demand
  • A Demand Draft can NOT be paid t a bearer
  • A DD is negotiable and its features are similar to Bill of Exchange and NOT a Check.
  • If a Bank fails to honor the Draft, the Bank is liable and not the person.
  • If there are wrong signatures on the Bank Draft, the Bank is liable.
  • If there is a prior arrangement , the DD can be payable by different bank also.

A person reaches the Bank with a Demand Draft payable to his account. At this situation, the Bank works as which of the following?

  1. Creditor
  2. Debtor
  3. Beneficiary
  4. Trustee

Answer to the above question is D (Trustee). This means that when a Bank draft is purchased , the relations between the purchaser and bank are that of a debtor and creditor , and as soon as this bank reaches the Payee, the Payee becomes beneficiary and the Bank becomes trustee.

Please note that once, the payee gets a DD, the payment CANNOT be stopped unless there is an order by a competent court. So,

  • When a draft reaches a payee, the relationship between the purchaser and Bank comes to an end.

Please note these points:

  • A demand draft can be prepared with cash payment if the value is less than ` 50,000.
  • For a value of ` 50,000 or more, only paid through bank account.

Draft is valid for 6 months. On expiry of this date, the draft can be revalidated by the Bank.

Category: Banking Exams Material Section