Introduction
Demand Draft is a bill of exchange drawn by a bank on another bank, it is a negotiable instrument.[1] It is issued by a bank on the request of a drawer upon the payment of requisite charges guaranteeing a certain amount to the payee whose name is so mentioned in the said demand draft. In this way, money can be transferred safely and securely from one person to another with the aid of banks which are highly trusted financial institutions.
Once a demand draft is issued by the banker, it cannot be countermanded easily. The reason being that after the issuance of such a draft, the bank and the purchaser are merely in a relationship of a debtor and creditor and not that of a principal and agent. Accordingly, it was held in Tukaram Bapuji Nikam vs. Belgaum Bank Ltd[2] that the relationship of the purchaser of a draft and the bank from which that draft has been purchased is merely that of debtor and creditor and the purchaser of the draft can, therefore, call upon the bank from which he has purchased it to cancel the draft and pay back the money to him at any time before the draft has been delivered to the payee.
Demand Drafts are of Paramount Significance
Demand Drafts are of huge importance and their contribution in the transference of money, in order to facilitate financial transactions, is of paramount significance. They are a highly safe, secure and trustworthy medium that one can use for the transfer of money.
Given below are the reason which illustrates why demand drafts are important and better as compared to other modes of transactions-
Guarantees Payment- A person giving and receiving payment through Demand Draft (DD) can sit back and relax without any tension as the transfer of the required amount of money is guaranteed without any hassle. Unlike cheques, a demand draft cannot bounce and therefore the payment is guaranteed to the payee. In case of cheques, there are many instances where it bounces due to insufficient funds and invites fines for both parties.
A means for all- About 66% of the Indian population consists of rural population[3] that amounts to more than half of the country’s population which remains technologically challenged. They still rely on traditional modes of transfer like simple bank transfer or payment in documented form through demand drafts. Their trust still rests on banks and prefers money transactions through the paper with bank involvement in it. In such case demand drafts prove very important to the rural public for money transactions and in turn are an important bill of exchange to the country whose more than half the population relies on it as a preferred negotiable instrument. In fact, it is actively used by urban public also for payment of fees of educational institutions and in certain payments concerning government institutions.
No risk of online hacking- Online transactions can be subjected to hacking and once the money is gone, it is difficult to get it back or even trace it. Hackers can steal money as well as sensitive banking details. But there is no such risk involved in the issuance of demand drafts. Money can be transferred easily without the risk online theft of information or hacking
No network issues- Online transactions like RTGS/ NEFT require good internet connectivity and these transactions will fail in the absence of the same and will create a problem if network lags. For e.g., there are several instances where the a/c gets debited but the amount fails to reach the beneficiary’s account. In rural areas where there are no proper towers for networks, online transactions are next to impossible and therefore money transfers through demand draft is a blessing. Demand Drafts do not require any internet connection, towers or good networks and can be operated by simple filling of papers and deposition of nominal charges.
The distinction between demand draft and cheque
In Raghavendra Singh Bhadoria vs. State Bank of Indore and others[4], it was pointed out that the main distinction between a cheque and a draft is that while the cheque is an order by the drawer on his own agent viz., the bank for the payment of a certain sum of money to the bearer or the order of the person in whose favour the cheque is drawn, a draft is not ordered by a private individual to his own agent.
Further, some other major distinction includes that in case of cheque, there are chances of bouncing of cheque but a demand draft can never bounce and the payee will definitely get the requisite amount. The second major difference is that a demand draft is prepaid and is issued by a bank whereas a demand draft is issued by a private individual.
Law on Demand Drafts
According to Section 113-A of the Negotiable Instrument Act, the provisions of Chapter XIV dealing with crossed cheques also apply to any draft as defined in Sec 85-A as if the draft were a cheque. Accordingly, a banker does not have any liability for receiving payment for a customer of demand draft if he has done so in good faith and without negligence. According to Section 118(g), the holder of a negotiable instrument shall be regarded as the holder in due course.
In case, a person wishes to bring about legal action for any breach or damage then he can file a civil suit and the provisions under Section 70, 72, 74 of India Contract Act can be attracted which relates to obligation of a person enjoying benefits of the non-gratuitous act, liability of the person to whom money is paid, or thing delivered, by mistake or under coercion and compensation for breach of contract where penalty stipulated for respectively. Therefore an aggrieved person can get a legal remedy by filing a suit under any of these provisions.
Conclusion
Demand Draft is an important form of bill of exchange which ensures guaranteed, safe and secure means of transfer of money to the payee. It is a traditional mode of prepaid transfer through bank on payment of some nominal charges. This mode of transfer of money is highly beneficial to the rural public which constitutes more than half of the Indian population owing to the reasons that they are technologically challenged and largely rely on bank transfers like money transfer through demand drafts. Lack of sufficient towers and poor internet connectivity in rural areas makes online transfers like RTGS/NEFT highly inconvenient and therefore demand draft comes out as the best negotiable instrument. It is in fact highly used in urban areas for payment of fees in educational institutions and government departments.
Demand Drafts differ from cheques as the latter may bounce but the former cannot. Further, a cheque is drawn by a private individual whereas a demand draft is issued by a bank. A legal remedy can be attracted by any person who incurs damage as a result of use of demand drafts by filing a civil suit under the provisions of the Negotiable Instrument Act and Indian Contract Act.
[1] Raghavendrasingh Bhadoria vs. State Bank of Indore and others [AIR 1992 MP 148]
[2] AIR 1976 Bombay 185
[3] Rural population (% of total population), The World Bank, ( May 27, 2020, 3:33 pm), https://data.worldbank.org/indicator/SP.RUR.TOTL.ZS
[4] AIR 1992 MP 148
This Article Written by Sheersha Saxena, Student of ICFAI Univesity, DEHRADUN
Also Read: Can You Encash A Cheque After The Death of Drawer?
