Bank Draft or Demand Draft

7/29/2019 Bank Draft or Demand Draft

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Bank draft or Demand Draft

DD is drawn by one branch of bank on

another branch of the same bank instructing the

latter to pay a specified sum of money to a

named payee or to his order.


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Features of DD

It is drawn by a banks branch on another

branch.

It cannot be made payable to bearer.

Its payment cannot be stopped orcountermanded.

It is always payable on demand.


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Magnetic ink character recognition

MICR technology has been introduced by

the RBI for speeding up the cheque clearing

process. The scheme has been initially

introduced in four metropolitan cities-Bombay, Calcutta, Madras and New Delhi.


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STEPS IN MICR PROCESS

Standardization of quality/size, printing of cheques or

drafts with suitable space for encoding information at

the bottom.

Encoding in magnetic ink specific details on the

cheque itself, to facilitate mechanical sorting. The

code line contains the following information:

First 6 nos indicate cheque number

Next 3 nos indicate city code

Next 3 nos indicate bank code

Next 3 nos indicate branch code.


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After some space there is number for transaction

code i.e. whether the transaction relates to a

savings or a current account.

MICR cheques should not be folded, pins etc.

should be put at the top left corner of the

cheque. The signature of the drawer, rubber stamp etc

should should be affixed above the code line.


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AMBIGUOUS INSTRUMENT

An instrument which in form or terms is

such that it may either be treated as a bill of

exchange or as a promissory note, is anambiguous instrument.


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Following are the cases the instrument

is taken as ambiguous

Where drawer and drawee are the same

person.

Where drawee is a fictitious persons

Where drawee is a person incapable ofentering into a contract.

the holder will have to decide, once for all

whether to take the ambiguous instrument asa promissory note or a BOE.


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INSTRUMENT PAYABLE ON

DEMAND

A Pronote or a BOE in which no time for

payment is specified (sec 19).

A cheque (6).

A note or BOE expressed payable ondemand or at sight or on presentment (Sec

31).


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INCHOATE INSTRUMENT

The term inchoate instrument means and

incomplete instrument.


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at sight on presentment after sight

(sec21)

in a promissory note or bill of exchange the

expression at sight and

on presentment means on demand.

after sight means in a PN after presentmentfor sight and in a BOE, after acceptance, or

noting for non-acceptance or protest for non-

acceptance.


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ESCROW

A bill, endorsed or delivered to a person

subject to the understanding that it will be

paid only if certain conditions are fulfilled, is

called an escrow.


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PAYMENT IN DUE COURSE

Acc to sec.10 payment in due course

means payment in accordance with the

apparent tenor of the instrument, in good faith

and without negligence, to any person inpossession thereof, under circumstances

which do not afford a reasonable ground for

believing that he is not entitled to receive

payment of the amount mentioned therein.


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Analysis of the definition:

Payment must be in accordance with theapparent tenor of the instrument.

In good faith without negligence.

Person in possession thereof. Payment should not be made under

circumstances which afford reasonableground for believing that the person was not

entitled to receive the amount mentioned inthe instrument.

Payment of money only.


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Maturity of the negotiable instrument

NI except cheque may be made payable either on

demand or on a specified date or after a specified

period of time.

Cheques, however are always payable on demand.

The date on which a NI fall due for payment is called

the date of maturity of the instrument.

Demand Instrument fall due for payment the moment

they are presented to the acceptor or drawee

payment.

Time instrument are given 3 days of grace period.


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Rules for determination of maturity

If a NI has been made payable after a stated

number of months after date or after sight

or after a certain event the period stated

shall be held to terminate on the day of themonth which corresponds with the day on

which the instrument is dated.

IF the maturity day of NI come out to be a

public holiday, the instrument shall bedeemed to be due on the next preceding

business day (sec.25)


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STATUTORY PROTECTION TO A

PAYING BANKER UNDER NI ACT 1881

Order cheque having forged endorsementof payee and endorsee.

U/S 85(1): According to this sec the PB is

protected in case of payment of an ordercheque with forged banker endorsement. This

protection is given on the grounds that, PB will

not be knowing exactly who the endorsee is.

payment has to satisfy certain condition:

There should be regular endorsement.

The payment must be payment in due course.


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U/S 16(2): it extends protection to the PB even

when the signature of endorsee are forged, as aPB cannot verify the signature.

The conditions are:

Endorsement is regular.Payment must be payment in due course.


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Bearer cheques

U/S 85(2) it indicates that the PB is

discharged from the liability by honouring a

bearer cheque according to the principle

once a bearer cheque is always a bearercheque.

The conditions are:

there was no suspicion about the bearer.

the payment made as per payment in due

course.


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Order draft with forged endorsement

U/S 85A: this provision gives protection to thepaying banker regarding the draft having a

forged endorsement.

The conditions are:the endorsement should be regular

the payment should be made in due course.


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Crossed cheque

U/S 128: the protection given to PB regardingthe payment crossed cheque to a person

other than the true owner is given under this

section. This provision states when the PBmakes payment in due course regarding a

crossed cheque, he is discharged of the

liabilities as he is deemed to have paid the

value to the true owner


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Materially altered cheque

U/S 89: the PB also gets protection regardingthe payment made to a materially altered

cheques provided

The material alteration is not noticeable evenby careful examination

Payment made in due course.


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DISHONOUR OF CHEQUES

it means non payment of a cheque across

the counter or through the account ( in case

of crossed cheque)

circumstances may be classifiedunder which the PB must dishonour cheque.

Under which the PB may dishonour cheque.


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Circumstance in which PB must

When the cheque is countermanded by the customer.

When the banker receives the notice of death ofcustomer

When the banker receives the order adjudicationconfirming the insolvency of the customer.

When the banker receives garnishee order absoluteagainst the A/c of a customer.

Holding of a defective title

Misuse of trust funds.

Forged cheque

Cheque without the signature of the drawer.

In case of cheque drawn by a foreigner, if there is a warin drawers country.

Closure of account.

Ci i hi h h b


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Circumstances in which cheque may be

dishonoured

The funds at the credit of the customer is insufficient. The signature on the cheque does not tally with the

specimen signature of the drawer.

A cheque is not dated, post dated. Or bears anincomplete date, or an impossible date.

A cheque is presented for payment after the bankinghours.

The words and figures stated in the cheque differ.

A mutilated cheque not confirmend by the drawer.

Cheque not drawn in proper form. Cheque not written in clear terms.

A customers a/c subjected to banker; lien or set off.


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Documents

Bank Draft or Demand Draft