Currently the use of negotiable instruments has reduced considerably, given the onset of digitization of monetary transactions. Now that everyone uses NEFT, RTGS or UPI for money transfer, instruments like Demand Drafts are almost extinct. But there are still some institutes or organizations that prefer taking a Demand Draft over the digitized form of payments.
What is a Demand Draft?
Demand Draft or DD for short is a Negotiable Instrument used by an individual or an institution to withdraw money from the bank. It is pre-paid in nature. The drawee bank undertakes to pay the amount noted in the demand draft, to the drawer, as and when the instrument is presented to the drawee bank. Demand Drafts are made offline and are firstly drawn by the person who has to make the payment upon his or her own bank. Later on this Demand Draft after being duly stamped and scrutinized by the bank is handed over to the drawer, who in turn will have to show it at the drawee bank branch to get the withdrawal.
It is important to understand that a demand draft is payable only at a specific branch or a specified center of the Bank and not anywhere else. These specifications are normally written clearly in the demand draft. People often use demand drafts where transactions with cheques are problematic or there are chances of it being bounced. Since a DD cannot be drawn unless the person drawing it shows sufficient balance in their account, therefore, there is an assurance of getting the specified sum at the presentation of the Demand Draft. Demand draft is valid only for a period of three months, post which the instrument becomes useless and if the person requires to make the payments again, they will have to draw a new DD.
Basic Features of a Demand Draft
- It is made payable to the drawer on demand
- A Demand Draft can never be paid merely to a bearer. To receive the payments by Demand Draft the person concerned or beneficiary must present the instrument to the drawee bank in person
- Ideally the payment is made by the drawee bank through its specified bank only, upon presentation of the demand draft, but in certain cases, the beneficiary may arrange for receiving the payments through his or her own bank by their clearance mechanisms
- All conflicts related to Demand Drafts can be taken to the courts under the Negotiable Instrument Act, 1881
Steps to Making a Demand Draft
- Visit your bank branch and ask them for the form that needs to be filled to request a demand draft
- Fill up the form and feed in all the relevant details, such as your name, name of the beneficiary, account number, bank on which it is drawn on, date, signature and other details that the form may suggest
- Present the form to the bank cashier for bank approval and stamps
- The cashier will verify your signatures and balance in account. Once he is satisfied, the draft will be sent for stamps and approval
- In some banks this step takes a while, in others, it is done instantly. It may also depend on your priority as a customer. For instance, if you hold the preferred customer card, you will not have to wait long to get the approvals
- You will then have to pay a minor sum to the bank for making the demand draft, post which you can collect your completed demand draft.
Cancellation of Demand Draft
Once you have received the completed demand draft, the money is deducted from your account. If, due to any reason, you have to cancel the demand draft, it can only be done at the bank. You will have to go to your branch and make a request for the cancellation of your demand draft.
There are two key scenarios for cancellation:
- If you got the DD by paying cash, then you must present the original DD along with the cash receipt. You will be refunded the money in cash after a small deduction of 50 rupees or so.
- If you got the DD through cheque, then you simply need to present the DD and the amount will be reverted to your account after the said deductions.
In case of Expiry of DD
It is important to note that a DD valid for three months, but if it has not been redeemed or cancelled before that time, the amount does not automatically get reversed into the account of the drawee. In this case, the drawee will have to write an application to the bank for re-validation of the draft. The bank will check all his original documents and details, once convinced, the bank will then re-validate the draft and the DD owner can apply for re-transfer of funds back to his account.