Which of the following statements about a bank demand draft is not true?

Introduction / Context:
A demand draft is a commonly used instrument in banking and commerce, especially for making secure payments. Understanding its legal and practical characteristics is important for exams on banking, finance, and general awareness. This question asks which statement about a demand draft is not true, so you must know how it differs from an ordinary cheque and under what conditions it can be dishonoured.

Given Data / Assumptions:

• A demand draft is drawn by a bank on another branch of the same bank or on another bank.
• The purchaser pays the bank the amount of the draft plus charges in advance.
• The draft is used to transfer funds securely from one place to another.
• We must identify the statement that does not correctly describe these features.

Concept / Approach:
A demand draft is often called a banker's cheque because it is drawn by a bank on itself or another bank. The payer (customer) deposits the full amount with the issuing bank at the time the draft is made. Because the bank already holds the funds, the draft should not be dishonoured for lack of funds in the customer's account when it is presented for payment. This is different from an ordinary cheque, which can be dishonoured if the drawer's account does not have sufficient balance at the time of presentation. Demand drafts are negotiable instruments and are widely accepted due to their security and reliability.

Step-by-Step Solution:
Step 1: Recall that a demand draft is issued by a bank and functions as a banker's cheque. Step 2: Recognize that the customer pays the amount in advance, so the bank is responsible for honouring the draft. Step 3: Understand that dishonour for lack of funds in the customer's account is not applicable in the same way as for an ordinary cheque. Step 4: Identify the statement that claims the draft may be dishonoured for lack of funds as the one that is not true.

Verification / Alternative check:
You can check the logic by comparing a demand draft to a personal cheque. With a cheque, the payer writes it against their own account balance, so if the balance is insufficient at the time of presentation, the bank can dishonour it. With a demand draft, the payer has already handed over the money to the bank, and the bank issues the draft on its own responsibility. Therefore, the usual reason for dishonour due to lack of customer funds does not apply, confirming that the statement mentioning dishonour for lack of funds is incorrect in this context.

Why Other Options Are Wrong:
It is a negotiable instrument: This is true because the demand draft can be transferred and encashed by the payee or endorsee subject to banking rules.
It is a banker's cheque: This is also true, as a demand draft is issued by a bank and represents a bank's payment commitment.
It is issued by a bank: This is correct and follows from the definition of a demand draft as a bank issued instrument.

Common Pitfalls:
A common mistake is to treat a demand draft exactly like a personal cheque and assume it can be dishonoured for the same reasons. Students often overlook the fact that the bank has already received the funds before issuing the draft. While a demand draft could theoretically face issues due to technical defects or fraud, the specific reason of lack of funds in the customer's account at the time of presentation is not relevant, because the bank, not the customer, is the drawer.

Final Answer:
The statement that is not true is that a demand draft may be dishonoured for lack of funds in the customer's account.