• Drafts can be drawn either against cash or by debiting a client’s (the entity requesting the
draft) account. It must be noted that drafts are always issued for consideration received in
• Drafts of Rs. 50,000 or more must be issued only against another cheque or by debiting
the purchaser’s account.
• Banks normally charge a commission for the issuance of a draft.
• By purchasing a draft an individual does not become a customer. . The relationship
between the purchaser of the draft and the banker is that of creditor and debtor
• It cannot be payable to bearer.
• The purchaser of a draft can by returning the draft have it cancelled before it has been
delivered to the payee.
• The purchaser cannot have the draft cancelled after it has been delivered to the payee..
• A bank cannot ordinarily refuse to pay the amount unless there is some doubt on the
identity of the person presenting the draft.
• If a draft is lost before it is handed over to the payee and is without any endorsement, the
bank can refuse payment. The bank must inform the drawee branch about the loss.
• Duplicate drafts can be issued if the bank is satisfied that the draft has been lost/
mutilated and a confirmation is received from the drawee bank that the draft has not been
paid. The purchaser should furnish an indemnity bond before a duplicate draft is issued.
• Drafts are sought because of the comfort to receivers as it is considered often as good as
money (if not better) since the bank issuing it is bound to honor it. Refusal is tantamount
to stating the bank is bankrupt.
• Traveler’s cheques are issued by banks and financial institutions like American Express
• They are for the convenience of travelers and are considered safer than money since if
these are lost the issuing company will issue duplicates on being intimated of the loss.
• They are convenient as they are issued in different denominations and in different
• Travelers cheques upto Rs. 50,000 can be purchased in cash.