Old Owner Constructed Extra Boundaries From The Neighbor's House

I recently purchased 8 years older house, now I am the 3rd owner. The first owner who constructed the house, built with extra boundaries of the neighbor's house as their mutual understand, the boundaries length almost 1.5 feet width and 60 sq-feet of length and the neighbor also sold his land other people. Now the new neighbor started threatening me and asking to demolish the extra boundaries. I am not able to demolish because the drainage pipe connection, electric cable going the that bounty and i need to demolish same parts of my balcony area also. Otherwise neighbor asking to pay RS.7000 per sq.feet the total cost 4+ Laks. but the current evaluation is RS.2500 per sq.feet. I could not able to pay that much amount as per my salary. This other mistake came to my head now. How to handle this problem legally. can any one help/suggest me please.