Before the sanction of loan, banks conduct the process of obtaining legal opinion, during which ownership record and encumberance etc is varified.If the legal opinion is favourable, bank may sanction the loan and if not bank can decline.In your case the loan was sanctioned, implying the documents were in order.
The borower has to repay the loan. The banks are under obligation to practice various check e.g. AML guidelines. The bank shall accept the payment from your relative and why the bank should collect payment from somebody else. And on the top of everything why the bank would issue NOC and handover to someone else. Did your relative deposited any security e.g land ownership papers e.g. registree or POA, etc.The bank Manager and officer shall handover the document to borrower.
From your post it appears that bank Manger was aware that someone else has repaid the loan and NOC has been supplied to someone else.
If your relative was owner of the land then without proper agreement and signatures of your relative and witness land can not be sold.
You should obtain the land sale record from the concerned authority e.g office of Tehsildar, and if any fake signatures and documents , witness is involved you can approach the court of law for cancellation of sale deed.
You can escalate your concerns in writing to BM,Nodal Officer, Appellate authority of the bank, and if they do not provide relief then MD of the bank with a copy to RBI.
I shall be appropriate to take legal help and contact a competent lawyer having expertise in such matters.
