Failure to repay loan

In 1994, my father had entered in a partnership agreement to form a new company alongwith two other people. They had taken a business loan of approx Rs.20 lacs from karnataka state finance corporation(ksfc). They however never started the company. They had constructed the building and bought some machinery. In about 1998,the partners started having differences which is when my dad quit the business by giving resignation. However they didn't dissolve partnership. They had not repaid the loan till then(not even 1 installment). In 2004, ksfc auctioned the constructed property and recovered Rs 20 lacs, which they adjusted towards interest, other charges and balance towards principal. While procuring the loan, my dad had declared his assets which included a house. This house we sold in 2005 and had bought a new house under mom and dads co-ownership. Some days back we had one officer(who is gonna retire in July) from ksfc who asked us to repay 4lacs to settle the outstanding amount which is Rs 6 lacs principal and Rs 8 crore interest. However we denied our inability. Now, he is asking us to pay Rs. 2.5 lacs in cash and has told us that he will take full guarantee that nothing will happen to this property and my father. I somehow don't believe him. Please suggest what should we do.