What is the difference between demand draft and crossed demand draft?

Answer 1

Explanation 1:

A Demand Draft is a banking instrument . In any case, if it is not crossed, it is bearer, meaning thereby that the bearer, anyone who is presenting it to the bank can get it en cashed . However, if we cross it, it is two parallel lines on the DD's top left, it becomes crossed . It means that the benefit of that DD can be taken only after getting it credited to the addressee's account only. By crossing the bearer ship goes, so the one who has signed the cheque or given the DD is very sure that it goes to the particular person and the particular person can be traced because it first went to his/her account . That is why a crossed draft is also chalked "Account payee only".

Explanation 2:

If you cross a bank draft only an account holder can en cash the same. It is generally safer than the normal bank draft.

Assume you take a draft for 100 dollars in favour of Mr. ABCD. If you don't cross it, Mr. ABCD can en cash it without having a bank account. However if you cross it the money will go only to a bank account. So at any point of time you can prove that you had indeed paid to Mr. ABCD. Another added benefit is in case the draft is lost, any body with the same name can claim the cash.

Thus you get two benefits : Added security as well as a proof.

Q: Can a draft not issued as cross by the issuing bank be crossed later?

A: Yes. Under Section 125 of the NEGOTIABLE INSTRUMENTS ACT, 1881, a holder may cross it.

Further more, such holder may cross generally, specially and also add words "not negotiable".

A demand draft is always an order instrument. The definition of a demand draft under Section 85A of the Indian Negotiable Instrument Act, 1881, makes it clear that a demand draft is an order instrument. In view of this, issue of a demand draft payable to a bearer is STRICTLY PROHIBITED under Section 31 of the Reserve Bank of India Act. If a demand draft is made payable to a bearer it becomes like a currency note and In India only RBI is empowered to issue a currency note. Hence a DD is always made payable to order of a person and no DD is issued payable to bearer.

Crossing is an indication to the banker that it should be paid only through a banker. In other words, cash will not be paid across the counter. The payment will be made through an account of the payee. The main purpose of a crossing is to ensure that the amount of the cheque is paid to the correct payee or endoresee and thus helps in preventing payment to a wrongful person. Thus the purpose of crossing is to ensure safety of the amount. It thus prevents wrongful persons from getting the amout of the cheque.

IF the demand draft is not crossed, payment will be made by the banker subject to proper identification of the payee. If the DD is crossed, the amount of the DD will be credited to the beneficiary's acccount.