Issuing a legal notice as Mr. Janardhana Reddy said, is one of the best ways. Every legal option might have its own flip sides in reality, like it might speed up the misuse. But we need to be aware that any misuse or manipulation takes place only after the issuance of notice, which fact will weigh with a court of law. Further such a notice will be a prelude to a suit for mandatory injunction directing the lender to return the cheques.
Another parallel measure is to issue a "Stop-payment" instruction setting out the facts.
Remedies under special enactments like the Money Lenders Act and any enactments made to protect the interests of borrowers like the Prohibition of Charging Exorbitant Interest Act [if applicable to this case], may be explored, apart from lodging a police complaint.
Whatever be the case, I totally agree with Mr. Reddy that a legal notice is the immediate step to be taken.