Voila! A demand draft is bounced!
Moneylife Digital Team 04 June 2013

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.

Comments
satish gupta
10 years ago
It is possible to cancel the DD, without presenting original at bank. In case of lost DD, an application is made for issue of duplicate dd, with due process and then it can be cancelled.

The original DD can therefore be presented for clearing and the situation explained by you can arise. Pls check with banks about this practice.
Jerry Thomas
10 years ago
Rana...google for DD cancellation procedure and you will get it...for your ready reference one such link is http://saikatd.wordpress.com/2009/12/05/...
RANA
10 years ago
Can u confirm where it is mentioned in the RBI rules that the DD can be cancelled by the applicant?
Jerry Thomas
1 decade ago
In addition to the original purchaser's request, the original instrument is to be presented to the branch for cancellation, but not so in this case.
vipan mahajan
1 decade ago
DD is also cancelled if the purchaser unfortunately loses /misplaces it
Ramesh Iyer
1 decade ago
There have been cases in the past when unscrupulous persons have managed to get bogus DDs with the connivance of Bank staff, and this has made this instrument as reliable as a cheque. Hence, seems it is better to use new-age facilities like NEFT/RTGS which are faster and more reliable.
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.
RAVINDRANATH
1 decade ago
Sorry I should have mentioned Central Bank of India Colaba's version not obtained not SBI Colaba's
RAVINDRANATH
1 decade ago
The DD is issued on 23.04.13 at Mumbai and made it payable at Mumbai itself. It is presented on the same day at Pune. Technically and even practically this is still possible because Mumbai-Pune can be reached in 3-4 hours' time. But if the payee was in Pune why DD was not made payable in Pune? So is something missing from the payee's story? Is it possible that the branch may have realised the mistake and issued another DD on Pune and cancelled this DD so that it is not encashed twice? What is SBI Colaba's story - which Money Life has not tried to obtain
satish gupta
1 decade ago
In case the DD is lost, the bank may issue duplicate DD by first cancelling original DD and obtaining the indemnity. The original DD in this case, may have been presented after being found by the original payee.
R Nandy
Replied to satish gupta comment 1 decade ago
I agree with your point.I followed the same procedure to cancel a lost draft.In addition,the issuing branch also sent a fax to the "payable at" branch not to honour the lost draft.This was in pre-CBS days.
R S Murthy
Replied to satish gupta comment 1 decade ago
Here the issue involved is when a DD is presented in its original form issued, whether a bank can refuse payment. The answer is a BIG NO. Under no circumustances a banker can refuse the payment of a DD. The only exception is when the bank is prevented or prohibited a Court of Law specifically.
Vaidya Dattatraya Vasudeo
1 decade ago
Want to follow up the discussion.
S BHASKARA NARAYANA
1 decade ago
In olden days, to cancel or issue duplicate draft, the drawer(issuing) branch used to seek the drawee (payable at) branch's non-payment confirmation, for which generally it takes months together.

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.
jaykayess
1 decade ago
As a layman, it looks to me like two mistakes on the part of CBI (and not SBI):
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.
Chandragupta Acharya
1 decade ago
The correct position under banking laws is as under:

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.
Chandragupta Acharya
Replied to Chandragupta Acharya comment 1 decade ago
Correction: Payee, not Drawee!
R S Murthy
1 decade ago
You are right. Demand Draft can be cancelled only on presenttion of original instrument. The usual practice in banks is when one reports loss of DD they obtain an indemnity and issue a duplicate one. The paying bank here CBI SSB Mumbai will be advised to excercise caution. When the original is presented, the paying branch will pay with a note of Caution to the collecting bank say SBI, that the DD is reported lost but paid in good faith. The collecting bank should assertain from the payee, how he got the instrument. If the account holder is genuine party in whose name the draft was issued, they can not stop him from drawing the amount. If any one opened the account just to encash the instrument, the collecting bank takes care to protect genuine payee. If they fail then we can hold them responsible. DD contains a notation ---AGAINST VALUE RECEIVED-----. When the bank had already got the value how can it refuse its payment.Such refusal to honour sends wrong signal that the bank is not in a position to pay.
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.
R S Murthy
1 decade ago
You are right. Demand Draft can be cancelled only on presenttion of original instrument. The usual practice in banks is when one reports loss of DD they obtain an indemnity and issue a duplicate one. The paying bank here CBI SSB Mumbai will be advised to excercise caution. When the original is presented, the paying branch will pay with a note of Caution to the collecting bank say SBI, that the DD is reported lost but paid in good faith. The collecting bank should assertain from the payee, how he got the instrument. If the account holder is genuine party in whose name the draft was issued, they can not stop him from drawing the amount. If any one opened the account just to encash the instrument, the collecting bank takes care to protect genuine payee. If they fail then we can hold them responsible. DD contains a notation ---AGAINST VALUE RECEIVED-----. When the bank had already got the value how can it refuse its payment.Such refusal to honour sends wrong signal that the bank is not in a position to pay.
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.
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