A demand draft (DD) is a pre-paid instrument that allows a bank customer to transfer money to another individual or business at a different destination. The demand draft is originated at one branch of a bank drawn at another branch of the bank ordering to pay a sum of amount to the individual/business entity or an establishment named in the draft.
DDs are often used for secure transactions like large amounts, property purchases, or educational fees, where substantiation and secure payment delivery are important.
The purchaser of the DD cannot ask the bank to cancel the DD issued by it without returning the original draft purchased by him/her. In case the DD was lost in transit or stolen, the purchaser cannot ask the bank to stop the payment of such a Demand Draft. However, the bank that issued the draft may inform the DD-drawn branch about the lost draft and ask them to exercise caution about the identity of the payee while making the payment.
The purchaser may ask the DD-issued bank to issue a duplicate draft. But the purchaser shall give an indemnity bond to the issuing bank indemnifying the bank against any loss to the bank due to the issue of duplicate DD. The DD issuing bank oversubscribed “Duplicate Draft issued in place of DD No…. dated ….. favour of ………… Pay only if original DD is not paid”. In the meanwhile, if the original draft is presented through clearing, the drawee bank returns the original draft informing the collecting bank about a duplicate draft issued in place of the original as the original draft was reported lost or stolen.
Banker’s cheque
A banker’s cheque (BC) or pay order (PO) is a prepaid instrument same as a demand draft. The difference is DD is payable at a different destination whereas the banker’s cheque is payable at the branch which issued it. So banker’s cheques are issued when they are payable in the same city or town.
Banker’s Cheques(BCs) issued by the banks are guaranteed payment to the beneficiary. There is no risk of a cheque returned for insufficient funds or a cheque countermanded by the drawee. It’s a safe way to make sure the payment is guaranteed because the bank already has the money. Therefore, beneficiary individuals or business entities insist on a Banker’s cheque in place of a normal cheque issued by a party. BCs often used for secure transactions like large amounts, property purchases, or educational fees, where substantiation and secure payment delivery are important.
Related Posts:
