Both a Cheque and a Demand Draft are defined as valid instruments of transfer of money under the Negotiable Instruments Act 1881 in India.
The cheque is a most commonly used form of Negotiable Instrument which is issued against deposits in Bank. The cheque has proven to be the most convenient tool for money transfer when the amount is big. A Cheque has been defined clearly in Section 6 of the Negotiable Instruments Act, 1881 as follows:
“A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.”
Thus, a cheque is an unconditional or unrestricted order directing the Bank to transfer a specific amount of money only on the order of the cheque holder along with his authenticated initials on it. The amount of money is paid only to that person whose name appears in the Payee column of the cheque. The Bank in which the customer or cheque holder keeps his/her account is called the paying bank.
You may also like to read: Authoritative Structure for Banking Structure
The defined parties of a cheque are:
(a.) The Drawer-
A Drawer is a person who issues a cheque on his account. He has the entitlement over the bank account on which the cheque is being issued.
(b.) The Drawee-
The Drawee is generally the other person or group of persons or the other parties to whom the amount of cheque is being issued. They hold the title over the amount of money signed to them.
On the other hand, a Demand Draft is basically a pre-paid instrument of transfer of money. It has not been defined in any specific act to date. However, it has its reference in Section 85 (A) of Negotiable Instruments Act, 1881 as
“Where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course.
An individual giving the order is known as a Drawer, and the person whose name is mentioned in the demand draft order is called Drawee. Today, demand draft has gained popularity in corporate culture. It is mostly used in payment of things like for job applications, examinations, admissions, service, documentation works, etc.
You may also like to read: Banking Laws and Provisions in India
A cheque and a demand draft are different in various prospects like-
1. A cheque can be dishonored or rejected based on various parameters like the failure of signature authentication or insufficient account balance whereas a demand draft cannot be countermand.
2. A cheque is not usually accepted in many transactions because the payee and drawer are unknown, and there will be credit risk as Cheque may bounce. While the demand draft is approved where the transfer of money is a surety and contains no point of doubt.
3. A Cheque payment is done after displaying the cheque to the bank physically while a Demand Draft is given after the payment to the bank has been already made.
4. A Drawee holds the authority of stopping the payment by cheque on the other hand the payment of Demand Draft cannot be curtailed.
5. Signature is a mandate in a Cheque and not in Demand Draft.
Concludingly, I would say in this era of Globalization, these traditional sources of money transfer are losing their essence. People should realize that Cheque has often been a more comfortable tool of revenue transfer than any other thing. Whereas, Demand Draft is a perfect choice for higher value rate exchanges.
 Subs. By Act 55 of 2002, S. 2 for S. 6 (w.e.f. 6-2-2003)
 Supra note, s 85(A)
If you like this article then do share it with your friends.
The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.
If you would also like to contribute to my website, then do share your articles or poems at firstname.lastname@example.org
We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.
You may also like to read: