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Cheques issued as security are not ornamental

The question whether cheques that bounced were issued in discharge of a debt/liability or it was only a security resurfaced in the Supreme Court in its judgment, Don Ayengia vs State of Assam. In this case, two parties agreed on building a multi-storied tower but later terminated the project. Don had given Rs 10 lakh to the other partner and he wanted it back. The partner issued a promissory note offering to pay the amount in a month. He also issued five cheques as 'security'. The payment was not made on time and the cheques were tendered to the bank, which rejected them due to 'insufficiency of funds'. Don prosecuted his partner and the trial court sentenced him to one year simple imprisonment and imposed compensation of Rs 12 lakh. On appeal, the district court changed the order to a fine of Rs 2,000 and payment of Rs 12 lakh. The Gauhati high court set aside all these orders maintaining that the payment was as security. Therefore, Don appealed to the Supreme Court. It allowed the appeal stating that the cheques were towards the debt. It said: "The cheques were not ornamental but meant to be presented if the amount was not paid within the extended period."

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