Whether above property has Ancestral Property Status to Grandfather of my daughter-in-law? Whether her father has sole right on this property as his father expired in 1988 itself and same right passes on her? Under which Section Settlement Deed can be got nullified for registering 1/3rd share of property? What further steps to be taken after getting injunction in our favour for staying in a floor of the house, as we are obstructed by one of the sister to stay in the house?
This is not ancestral property for your daughter in law but she has a right to a share in her father's share in the property that was left behind by his father who is reported to have died intestate.
Actually the 1/3 share settlement made in favor of one of his sisters without the consent and permission of other shareholders is illegal and invalid in law.
Your daughter in law being the only legal heir to her deceased father along with her mother (if living), can file a partition suit claiming her father's share in the properties that were left behind by his father.
As per law the earlier unregistered partition deed done by his father is also invalid in law but if it is considered as family arrangement then there is no question of challenging it now.
However you may advise your daughter in law to file a partition suit and seek separate possession of her rightful share in the property.