April 26, 2023

Demand Draft

Merchant has made full payment against the goods that he/she received, cross border.
- School fees, and utility bills have been paid
- You just transferred payments from one of your bank accounts to the other

For such transactions and many more, a demand draft or simply, DD is the preferred choice as this bank initiated prepaid negotiable instruments, when presented by the payee, the drawee bank ensures fulfilment of the amount mentioned on the cheque. It is important to note that while the DD is payable on demand, it is not payable to the bearer. The DD is made payable on a specified branch of the bank at a specified centre and does not require signatures to be cashed.

The flip side to this ease, is that, in a situation of suspicious/fraudulent payèe, you cannot disregard the payment when he/she presents it at the specific branch. The drawee bank is obligated to make full payment to the extent of the amount mentioned on the DD.

Relevant fields of a typical DD

Name of the bank branch initiating the DD on behalf of the drawer
Details of the payee/receiver
Date of issue, as DDs are valid only for a period of 3M from the date of issue.
Amount payable in words and digits
A unique DD number
Authorised signatory of the branch official issuing the DD.

Details of the DD application form

Enlisted below is the bucket list of fields you need to fill in the DD application form which is issued by the bank.

Your name and address ie. drawer's/ applicant details
Payee's or the drawee's name and address details
Location details ( name of the city) where the DD is payable
Mention the amount payable to the payee/drawee in words and figures
Service charges of the bank for making the DD
The final amount payable by the drawer to the bank (in figures)
Drawer's Signature

The process to execute a DD is fairly simple and begins with the drawee/applicant filling the form and making the necessary payment in cash or from his/her bank account to the issuing bank.

Now the bank verifies your form details and upon authentication issues the DD to the drawee. Once the drawee delivers this DD to the payee and the payee presents this cheque to the branch, he/she would then receive the funds and finally the transaction is complete.

A few important considerations, benefits and limitations of DD are as follows:

The bank takes the onus or the guarantee to provide the fund amount mentioned in the DD to the payee. It is a prepaid negotiable instrument.

This mode of transferring funds from one account to the other is useful in situations wherein:
- The payee's account details are not known.
- The ticket size of the fund is large.
- There is no maximum /minimum threshold amount to be transferred.
- Once the DD is issued, the sender cannot interrupt/stop payment to the receiver, except by court intervention.

Or if it gets stolen, the Bank is not responsible for any undue encashment of the DD by fraudsters.

As a good record-keeping practice, take a photocopy of the DD or write down the DD details for reference checks at some point in time.
Always double check the credentials of the drawee/beneficiary, before you submit the DD form to the bank

For the bank to process your DD, you can either pay cash or pay from your bank account.
If you choose the former, you simply submit the DD form at the branch and pay the requisite cash. The bank will then furnish the DD in a few minutes**.**
On the other hand, if you choose to get the amount deducted from your account directly, then the bank will process the DD after deducting the requisite amount from your account.
You would have to provide your identity proof and address proof to the bank to process the DD. In case the DD amount exceeds ₹50,000, PAN card details would also be required.
In case the DD is not delivered to the receiver, the amount is refunded to the sender by the bank.

FAQs:

Is there a possibility to cancel my DD, if it has not been processed by the bank?

Technically and legally, you cannot cancel the DD as it is a pre-paid guaranteed instrument.

However, in case the bank has not yet processed the DD, you can approach the bank which issued the DD with a copy of the original DD, receipt of cash payment, and fills up the cancellation form.

After verification, the bank will refund the amount after adjusting for the service charge.

What should I do if I misplace my DD?

In such a scenario, you need to sign an Indemnity Bond on a stamp paper in favour of the issuing bank.

You can then present this copy to the bank which will process your payment either in a week's time or by the end of the validity period of the DD, after adjusting the amount with a processing fee.