Security cheque is misused and it got bounced.What is my liability?
Am I accountable if I issue a cheque (blank cheque) as a security collateral for cash taken by a neighbor and the neighbor runs away with the cash? The lender has now filled the cheque himself for Rs.100,000 and presented it, and the cheque got bounced.
He then sent me a legal notice for which I replied and has now sent me court summons. Am I liable to pay the amount considering I did not take the money and there is no other written proof of the money apart from the cheque.
The person who issues a cheque is liable under the Negotiable Instruments Act to the person to whom the cheque has been issued. So in case you have issued a cheque to another person, it will be considered that you owe the person the said amount, and the payment is being made to fulfil your obligation towards that amount due, unless you are able to prove otherwise.
Since the cheque was issued to the lender as a collateral, he is entitled to present the cheque to the extent to which the money is to be paid.
Since there was no contract of Guarantee, you cannot be made liable to pay the amount. You have to defend the matter in the court after taking bail and leading the evidence. Since there is no liability, the only option you are left with in the given circumstances is to defend the matter.
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