Engagement broken

In may 2014 my marriage was fixed in the presence of 15 people in all from both sides on a piece of a paper on which they put on their signatures except me and the girl.it was a family function in which we dined after the function.the girl's father spent around 1000/-on the function.later on my family found that there are serios kundli doshas in our horoscope and we decided to cancel the engagement.we conveyed the same to the girl's father but he was not ready to listen and started demandind 50000/- for the expenses. we were ready to pay 10000/- but he didnot agree. after 2-3 attempts we stopped all contacts with them. in the meanwhile he served a private notice through an advocate to which we didnot reply but instead met him once again to console with no result.after one year i received a letter from a police station regarding the case (ipc 420)upon request for enquiry from the court.the police are demanding 40000/- to solve the case and gave me two days to comply.here also i offered to pay 10000/- to which they didnot agree.it's been 20 days now since i have been there and i have decided not to give 40000/- .please note i m a govt servant and what could be the implications of ipc420 on my job if i went ahead with the case(fight the case).the girl's father has 2-3 photos of the function.pls guide sir.