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.
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A Demand Draft is payable on demand
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A Demand Draft can NOT be paid t a bearer
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A DD is negotiable and its features are similar to Bill of Exchange and NOT a Check.
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If a Bank fails to honor the Draft, the Bank is liable and not the person.
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If there are wrong signatures on the Bank Draft, the Bank is liable.
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If there is a prior arrangement , the DD can be payable by different bank also.
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A person reaches the Bank with a Demand Draft payable to his account. At this situation, the Bank works as which of the following?
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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,
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When a draft reaches a payee, the relationship between the purchaser and Bank comes to an end.
Please note these points:
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A demand draft can be prepared with cash payment if the value is less than ` 50,000.
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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.