Bankers Cheque (Pay order) and Demand Draft- A comparison
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urrency is something of a value generally used as a medium of
exchange for goods and service. Cash, for example, is currency in the form of
bills issued by a government of Respective country and generally accepted at
its face value as a method of payment.
For ease of commercial
transactions the currency is supplemented with other forms of instruments like
cheques and drafts to cater to the specific payment needs. In India the
statutory basis for these instruments are provided in the Negotiable
Instruments Act, 1881 (NI Act).
The advent of new age digital technology coupled with the adoption of core banking solutions (CBS), automation of branches, and introduction of electronic funds transfer system like NEFT IMPS and RTGS for quick movement of funds have almost obviated the traditional mode of cheques and drafts system for transfer of funds/money. But, there are still certain instances where you might require to do fund transfer through traditional mode like pay order or demand draft.
In many situations, like payments to utility service providers, educational institution fees, certain transactions like real-estate dealings, industrial/commercial purchases, etc., or in instances where the parties are unknown to each other and lack trust, Bankers cheque or Demand Draft are a common norm to guarantee the payments even today.
Many of us have some confusion between pay order and demand draft, as the purpose of the same and which one to use and when.
In this post, we will try to get a general idea on a two relative instrument’s :- “Bankers Cheque” a.k.a Pay Order and “Demand Draft”.
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Banker's Cheque (also known as “Pay Order”)
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Demand draft |
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Used
for the transfer of money locally/ within the same city. |
Used
for the transfer of money locally or to another the city/outside the
country as requested by the customer. |
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In
a Banker’s Cheque, the person who requires the bank to issue the check pays to
the bank the amount of money for which the check is to be issued either in
cash or from his bank account. Upon remittance the Bank writes a cheque in
favour of a specific person or entity to whom the applicant is required to
pay certain amount. |
In a demand draft, a bank issues a demand
draft to a customer in which another bank or another branch of the same bank
is asked to pay a certain sum to the specified party. Since it is a pre paid
instrument Demand Draft is issued against payment or debited from the account
of the customer requesting the draft.
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Payment instrument which is used for payment within the same city.
Cleared in any branch of the Bank in the same city.
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A financial instrument which is used to transfer money by an
individual from one city to another person in a different city. |
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Issuing Bank and clearance bank will be the same. |
Issuing Bank and clearance bank will be the same. |
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Unlike
normal Cheque, Banker’s Cheque is issued by the bank on behalf of the client |
Issued
by the bank in favour of the client to transfer money to different
cities. |
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Non- negotiable instrument |
Negotiable instrument |
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Prepaid instrument, i.e. Issued against advancement
payment |
Prepaid instrument, i.e. Issued against advancement
payment |
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Validity
period of the two instruments is 3 months (can be
revalidated subject to some formalities) |
Validation
period of the two instruments is 3 months, (can be
revalidated subject to some formalities) |
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No risk of getting the payment dishonored or bounced because
it is issued against payment
and bank always pays on
presentation of the instrument. |
No risk of getting the payment dishonored or bounced because
it is issued against payment
and bank always pays on
presentation of the instrument. |
A Brief look into “the Positive Pay” Mechanism for clearing (personal) cheques
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n order to check banking fraud and
tampering of cheque leaves, Reserve Bank of India (RBI) had announced introduction
of Positive Pay System for Cheque to be implemented from January 01, 2021. The concept of Positive Pay
involves a process of reconfirming key details of large value cheques, i.e. for all cheques of value Rs. 50,000 and above.
Under this process, the issuer of the cheque submits electronically, through channels like SMS, mobile app, internet banking, ATM, etc., certain minimum details of that cheque (like date, name of the beneficiary / payee, amount, etc.) to the drawee bank, details of which are cross checked with the presented cheque by CTS. Any discrepancy is flagged by CTS to the drawee bank and presenting bank, who would take redressal measures.
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Disclaimer: The Information provided on this blog does not, and is not intended to, constitute legal advice. All information, content, and material available on this blog are for general information purpose only. The Information on this blog may not represent the most up to date legal or other information.
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