Negotiable Instruments Act Explained: Due Date, Days of Grace, Demand Draft Rules, Section 85A & Duplicate DD

Have you ever found yourself confused while calculating the maturity date of a time bill or unsure whether a particular negotiable instrument receives Days of Grace or not? If yes, you’re not alone. These areas of the Negotiable Instruments Act (NI Act) are some of the trickiest yet most frequently tested topics in JAIIB, CAIIB, IIBF, and other banking examinations. Even experienced bankers occasionally struggle with these concepts while handling customer instruments at branch counters.

In this extended guide, based on the detailed video session, we break down every critical concept related to due date calculation, time vs. demand instruments, commercial payment instruments, and Demand Drafts (DDs) issued under Section 85A. You will also understand how banks are protected when paying DDs, when this protection is withdrawn, and the complete procedure followed when a DD is lost, misplaced, or requires duplication.

This article is particularly valuable for:

• Banking exam aspirants
• Newly recruited bankers
• Commerce and finance students
• Anyone wanting clean conceptual clarity on NI Act provisions

Before exploring the detailed concepts below, take a moment to watch the original video linked below — it will strengthen your understanding and help you connect each point with real branch-level situations.

Before we dive in, watch this video for a complete breakdown:

1. Understanding the Foundation: What Is a Due Date?

The due date is the final date on which the amount of a bill of exchange or promissory note becomes payable. For time instruments, this date is determined based on the tenor mentioned on the instrument.

The two types of tenors are:

• After Date
• After Sight

If a bill says “30 days after date” or “3 months after date,” you must add the respective period to reach the maturity date.

2. Understanding Days of Grace

The NI Act grants 3 extra days beyond the calculated maturity date for certain instruments. These are called Days of Grace. Grace Days apply only when the bill is payable after a certain time period and the bill does not have a fixed due date.

If the bill already states “Payable on 25 December,” then no Grace Days apply.

3. Time Instruments vs Demand Instruments

Correct classification is essential:

Time Instruments (Grace Days apply)

• After Date
• After Sight
• After a specific period

Demand Instruments (No Grace Days)

• Payable on demand
• At sight
• On presentation

4. Calculating Maturity: After Date

Example:
Bill dated 1 January, payable 30 days after date.

Step 1 — Count 30 days → 31 January.

Step 2 — Add 3 Days of Grace → 3 February.

5. Calculating Maturity: After Sight

If a bill is payable “after sight,” the clock starts only when the drawee accepts the bill.

Example:
Accepted on 10 March, tenor = 60 days.

Final maturity = 12 May (including Grace Days).

6. Instruments Not Eligible for Grace Days

7. Full Month Method Explained

If a bill is payable “3 months after date” and dated 1 January, the months are counted as:

• 1 Feb = 1 month
• 1 Mar = 2 months
• 1 Apr = 3 months

Add 3 Grace Days → Final maturity = 4 April.

8. Handling Missing or Impossible Dates

If a bill dated 30 January is payable “1 month after date,” the corresponding date is:

• 28 Feb (non-leap year)
• 29 Feb (leap year)

Add 3 Grace Days to get the final maturity date.

9. What Is a Demand Draft (DD)?

A Demand Draft is a pre-paid instrument issued by a bank branch directing another branch to pay a specific amount to a named payee.

• Always payable on demand
• No stop payment allowed
• More secure than cheques
• Not payable to bearer

10. Section 85A: Protection for Paying Bank

Under Section 85A, a bank is protected if it pays a DD in good faith and without negligence.
The bank is protected when:

• DD is genuine
• Payment is according to its tenor
• Payee appears entitled
• No visible alteration

11. When Protection Does Not Apply

• Material alteration
• Negligence by bank
• Duplicate DD stop ignored
• “Account Payee” instruction violated
• Forged endorsements overlooked

12. Validity of a DD

A Demand Draft is valid for 3 months from the date of issue.

13. Why DD Cannot Be Payable to Bearer

Under RBI rules, banks cannot issue instruments payable to bearer exceeding ₹2000.
A bearer DD could be misused like cash, hence not allowed.

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14. Payment Rules for High-Value DDs

Any DD of ₹20,000 or above must be purchased from an account. Cash purchase is strictly prohibited.

15. Legal Relationships in a DD Transaction

• Purchaser & Issuing Bank → Debtor–Creditor
• Drawee Branch → Agent / Trustee
• Payee → Beneficiary

16. Lost DD Procedure

Steps followed when a DD is lost:

• Customer applies for duplicate
• Bank verifies DD status
• Stop payment marking
• Submission of indemnity bond
• Approval and issuance of duplicate

17. What Is an Indemnity Bond?

A legal undertaking by the applicant to compensate the bank if the original DD is misused.

18. Issue of Duplicate DD

As per RBI, the bank must issue a duplicate DD within 14 days of request.
If delayed, the bank must pay:

• Interest at FD rate
• Additional compensation if required

19. Special Rules for Duplicate DD Issue

• Up to ₹5000 → Drawee confirmation not required
• Above ₹5000 → Drawee confirmation mandatory
• Original DD becomes void after duplicate issuance

Conclusion

The rules under the Negotiable Instruments Act regarding due date calculation, Days of Grace, Demand Draft functioning, and duplicate DD issuance are essential for every banker and banking aspirant. These rules guide daily branch operations and form the backbone of exam preparation.

Correctly identifying instrument types, applying calculation methods, and understanding Sections like 85A can make complex tasks simple and error-free. Demand Drafts continue to be one of the most secure payment modes, and a clear understanding of duplicate issuance procedures ensures efficiency.

Apply the methods learned here in your daily practice. For more clarity, do watch the detailed video linked at the top and explore more such in-depth guides on banking and finance.