Dear Sir,
My answers to your two sets of questions are as follows:
1. Can we take legal action against her (either for using mobile phone inside school or for not coming school) ?
Ans: No, the law does not permit.
2. She is asking her certificates back. Can we hold it for next 4 months to give a message to the other staff of the school (Because this habit may spread to the other staff also)
Ans: It is your moral responsibility to return the documents otherwise she may create a scene by approaching police and the Court. You cannot bring awareness by returning her certificates among other staff members but it gives a wrong signal about your administration among other staff members and indirectly alerting them about legal rights.
We didn't gave her any receipt/acknowledgement while receiving her certificate. So can we tell he that we don't have her certificates in our hand (actually we have her certificates) ?
Ans: As said above it is your moral responsibility to return her certificates even otherwise she can get duplicate academic certificates from concerned educational departments.