The Bank is free to demand from you or take action against you, if it thinks fit in spite of the property of the borrower is charged to it.
Normally Bank will choose easiest way of recovering the amount.
As a guarantor, your liability is co-extensive with that of principal debtor.
But Bank can not send directly any police for arresting you.
Unless a fraud is committed, it is a civil litigation, bank as has to recall the advance and serve recall notice on you and if you have not responded to the notice, it is free to take legal action by initiating a suit including you as a party.
They have to obtain a decree first and they are required file execution petition for sale of the known assets of you or the principal debtor as per the terms of decree.
If there are no realisable assets, then only they can pray the court for awarding civil imprisonment. Generally no Bank will ask for civil imprisonment of the borrower or guarantor as the Bank is required to pay the expenses for such imprisonment.
I do not believe the Police came for arrest. If they came, it is only to assert pressure on you and they can not arrest you without the above process. Engage a local lawyer explaining the above points.
What happened to the property of your friend?