A demand draft is an order from one bank to another branch of the same bank to pay a specified sum of money to a person named there in or to his order. A draft is always payable on demand. Banks issue demand drafts on their branch at the place of destination for remitting money from one place to another. According to Section 85-A of the Negotiable Instrument Act, “A demand draft is an order to pay money, drawn by one office of the bank upon another office of the same bank for a sum of money payable to order on demand.”
A person may buy a draft by paying the amount in advance to the bank. The bank then issues the draft, The purchaser of the draft then sends the draft to the payee’s place by simple or registered post. The bank issuing such draft charges a commission for rendering this service.
Meaning of DD :
The Demand Draft is an instrument used to transfer payments from one bank account to another. Demand Draft also is like cash, but much more secured than cash.Some secured features are:
- Extremely unlikely to be stolen and used
- No chance of fake notes circulating in India
- Can be encashed only by the person on whom it is issued
- Can be easily carried, no threat to life due to robbers when carried
- Sender can be easily identified
- Can be safely sent by courier or post
- Can be easily cancelled
It is quite popular instrument. Also it’s the preferred method of payment for applying any admission in institutes, paying fees, applying for subscriptions etc…
There are three parties to a demand draft:
1) The drawer branch. 2) The drawee branch. 3) The Payee.
The person who receives the draft can get the money from the local branch at his residence. The purchaser of a draft may not be a customer or account holder of the bank. The service is provided by the bank to the public in general.
Legal Status of a Bank Draft :
A bank draft is a bill of exchange because it fulfills all the essential requisities of a bill. e.g.
- i) It is an instrument in writing.
- ii) It contains an unconditional order.
- iii) It is signed by its maker.
Actually a bank draft is not specially mentioned as a negotiable instrument in Section 13 of the Negotiable Instrument Act. But because of the resembalance of a bill of exchange as mentioned above, it is considered as a negotiable instrument.
Stopping Payments of Bank Draft :
Though a bank draft is recognised as equal to a cheque for certain purpose it is different from cheque as far as the issuing bank’s position concerned. A cheque is drawn by the drawer on his banker. The drawer possesses the right to stop its payment before it is actually made. But, the purchaser of a bank draft does not stand at part with the drawer of a cheque. In fact, the drawer of a draft is not deemed to be a party to the instrument.
The parties to the draft are the issuing branch, the paying branch and the payee. By issuing a bank draft, the banker takes upon himself a commitment in favour of the payee who is a third party to a draft, to pay a certain amount of money. It is an assurance of the bank to pay the amount to the payee as the consideration is paid by the purchaser of a draft.
Therefore, the purchaser of a draft do not have any right to stop payment of a draft. The banker should not comply with stop payment instruction given by the purchaser of a draft. When the bank draft is passed on to the payee, he acquires a right in the instrument. Such right cannot be set aside by the stop payment order issued by the purchaser. If the payee has endorsed the draft in good faith and for value to a third party, he acquires rights enforceable against the banker. This right will not be affected if the draft is delivered to him and subsequently a dispute arises between the purchaser of a draft and the payee.
Cancellation of Draft
Check Detailed Articles from following link: Cancellation of Draft
Issue of a Duplicate Demand Draft
Check Detailed Articles from following link: Duplicate DD