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?
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.