To reiterate what hdogan said so that you/your family don't worry about it:
1. The passenger(s) who held the ticket are the ones affected and thus the ones covered under regulation
2. Citizenship, residency status, height or weight, do not matter.
3. How the ticket was purchases does not matter, so long as it was through a means that is generally available to the public (i.e. travel agency, lh.com, award redemptions). This notably excludes, e.g. staff non-rev tickets.

The headquarter of the airline is somewhat secondary afaik. The offered itinerary was ARN-FRA-XXX, so one could also very well use the arbitration court (if there is one) in Sweden as the place of departure (and given that they are EU members), especially since this is where the initial issue arose. Someone is likely going to correct me but there are two factors that decide in which locality you can bring legal claims: (a) where the business is located and (b) where the business is doing business, in this case Sweden. On a tangent: for US small claims courts you can bring a claim in any county where the airline regularly flies to (i.e. is doing business). Similarly, if you have a hypothetical LHR-FRA-MAA, you could very well use CEDR in the UK if LH subscribes to it or MCOL, though I'm sure you could also try the "söp" or the much more useless LBA in Germany. One or the other might also tell you that they are not in scope due to a, b, or c...

N.B.: If one person wants to file for all of them, it is advised to have a written consent from the other passengers that one of them can communicate on their behalf.
N.B.2: Disbursement of the compensation/reimbursement usually occurs via bank transfer and if they do not hold an EU bank account it can be a little more complicated, though many foreign banks have "correspondence banks" in the EU or UK. There was one pax who had issues with BA sending money to their Georgian bank account fwiw.

Since neither his father in law nor indian travel agency had incurred any direct costs associated with their rerouting (as neither did they themselves) there should not be additional claims related to that that might be complicated based on who's named on the receipts. Further, since they were possibly always "on a flight" I suppose they did not have (reasonable) expenses for food/beverages they would not have had otherwise? If they did, e.g. for food/bev at ARN while waiting for the delayed service, they could claim that under duty of care, though whether that's necessary is for them to decide.