You should definitely go to court, get the help of a civil lawyer .
Municipality has asked to vacate the premise due to the dilapidated condition then it cannot allow the residents to continue
Is there any builder involved. if the building is dilapidated and your father owned it , redevelopment is the option and you have the right to do that.
It looks like some interested persons are involved in it who are eyeing on the property.
Dont agree for any society registration as the occupants will have the legal claim.
You should approach the court and once the matter is decided you can go ahead and make a redevelopment agreement with any builder, or sell it , whichever the situation the present occupants will get their share