SBI and Central Bank of India returned a DD saying that it is a "cancelled instrument". What these banks forgot is that the DD cannot be cancelled without the original instrument, which was in their possession at the time of clearing
Strange as it may sound, but two state-run lenders, State Bank of India (SBI) and Central Bank of India (CBI) had created a new record of bouncing a demand draft (DD). In this particular case, both these banks returned the DD drawn by CBI saying, “Instrument is cancelled”.
As we all know, a DD is much safer and certain method of payment compared with cheques. In case of cheques, an individual is the drawer and hence the cheque can be dishonoured by the drawee bank due to various reasons, like insufficient funds. However, in case of DD, the drawer is a bank and hence the payment is certain and the instrument cannot be dishonoured.
Central Bank of India's branch at Colaba Causeway in Mumbai, on 23 April 2013 issued a DD (no93323) for Rs21,878 on the name of Aditya Rahul Talavliker. The DD was presented in SBI's Erandwana branch at Pune by Aditya Talavliker. However, to his surprise, Central Bank (being the local clearing branch) returned the DD saying that the “instrument is cancelled, contact branch”.
Interestingly, a DD can be cancelled, provided the original instrument is presented to the drawee bank. In this case, while the DD was with the banks in Pune, how can the drawee bank branch (at Colaba, Mumbai) cancel the instrument?
There are two possibilities. One the bank employee failed to distinguish between a cheque and a DD. And two, he may not have consulted with his/her seniors before labelling the DD as a “cancelled instrument”.
Moneylife has sent a mail to the SBI chairman and would post his response as and when it comes.
Clearance of a DD
Normally demand drafts are used to pay on demand certain amount to a specified beneficiary from one branch to another branch of same bank. However, since DDs are a kind of cheque, the basic principles of cheque clearing also apply to drafts. This means, if the payee does not have account with the same branch, he/she can deposit the DD in his bank. The bank in turn would send the DD for outward clearing (similar to cheque clearing) to the local clearing house.
Cancellation of DD
A DD can be cancelled at the same branch from where it was issued. The applicant needs to give a letter along with the original DD for cancellation. The bank, in turn would cancel the DD after deducting certain charges and credit the amount in the account of the applicant (if he have one with the same branch) or give him a pay order. Only the person, who has filled the application form for the original DD, can cancel it.
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The original DD can therefore be presented for clearing and the situation explained by you can arise. Pls check with banks about this practice.
Of course, for the majority who do not use or have access to technology-based Banking services, there seems no alternative to cheques or DDs.
But, in the present scenario of online networking of all the branches and instant reconciliation of inter office entries (like drafts etc.,) the "period of months together" narrowed down to seconds and no need of asking confirmation from other end.
1. The first mistake is bouncing the DD in the first place - maybe due to some clerical error.
2. The second mistake is mentioning a wrong reason for bouncing it.
In any event, the customer should be compensated for the trouble and delay.
If the purchaser of the DD states that the DD is lost and gives an Indemnity, the DD can be cancelled by the issuing branch and a duplicate issued without the physical DD being in its possession. In such a case, if the original DD is presented for clearing, the DD can be returned ONCE stating "DD reported lost, please confirm Drawee". Now, after due confirmation of the Drawee by the presenting bank, the cancelled DD can be paid and the duplicate marked as cancelled.
In the present case, the reason given for return is incorrect.
Again you have sought comment of SBI MD. It is ok. You should ask CBI MD to comment on this. It is their official who refused to pay. SBI will only give general opinion but not explanation.
Again you have sought comment of SBI MD. It is ok. You should ask CBI MD to comment on this. It is their official who refused to pay. SBI will only give general opinion but not explanation.