From the facts stated, your mother's sister is entitled for the family pension. Your mother's entitlement would commence once your aunt ceases to receive the pension (because of death or remarriage).
The present imbroglio could have been averted had all concerned had taken timely action to get the PPO of your grandfather revised.
In the present scenerio, the State Government needs to revise PPO by including the names of your aunt and your mother.
As already advised, you may get the requisite information under RTI, and then seek direction from the appropriate judicial forum to get the matter expedited.