Canara Bank v. Nuclear Power Corporation of India Ltd

Facts

• Nuclear Power Corporation purchased demand drafts from Canara Bank
• Subsequently, Nuclear Power Corporation instructed Canara Bank to stop payment on the drafts
• Canara Bank refused, stating demand drafts cannot be countermanded
• Nuclear Power Corporation filed suit for the draft amounts claiming the bank must follow customer instructions

Issue

1. Whether a demand draft can be stopped/countermanded by the purchaser, similar to a cheque.

Held

• The Supreme Court held that a demand draft is fundamentally different from a cheque. In a cheque, the customer is the drawer who directs the bank (drawee) to pay; the drawer can countermand this direction. In a demand draft, the bank itself is the drawer. The purchaser merely pays consideration for the bank to issue its own instrument. Since the purchaser is not the drawer, the purchaser has no authority to countermand. The bank's obligation under the draft is unconditional. The draft is as good as cash.

Ratio Decidendi

A demand draft is a bill of exchange drawn by a bank on itself. The purchaser is not the drawer and cannot issue countermand instructions. Once issued, the bank's obligation to pay the named payee is unconditional and irrevocable.