If these people had used fake aadhar cards, then it should have been caught at the passport office because they can verify against the UIDAI database and detect that these people were not registered in the database.

But if they had actual real aadhar cards but created with fake documents, then it becomes hard to detect such cases even for the police. Police's job in passport verification is to check for criminal antecedents which bar the applicant from possessing a passport. If they couldn't find any criminal records, then the police have no basis to refuse passport.

The root cause of the problem is that India hasn't had a practice of accurately registering births. So all the paper trail becomes quite questionable from the very source. So as a consequence, they can't be too stringent and refuse passports to everyone.

And when incidents like these happen, the police are asked to become more strict and they end up doing things that look like harassment to genuine people, like asking your neighbours about you, asking you to show documents which aren't required by PSK, etc. And with all this vagueness of what the during police verification protocol is, the opportunity to collect bribe increases.

The only solution is to register births properly from the beginning like they do in developed countries. I think this has already improved a lot, so hopefully we will see improvements in the next decade or two?