Some years back, my in-laws had loaned my brother some money without my knowledge. I came to know of this news much later just by chance. The money was never returned back and no topic had come up to return it. Now, some crisis has arisen and my in-laws are demanding the money back. I am in the middle of this situation as to whose side to be on so as not to hurt the other. I live in another country from my in-laws and brother. Why should I be made the guilty party here? What should I do? Has anyone been in such a situation? Would appreciate some good advice. Thanks.

You should be on neither side. The bottom line is, when one side lent money from the other they did not ask you nor were you involved with the decision making so you should be involved with it now. It is between you in-laws and your brother, your brother will need to return the money to they anyway as it was originally a loan and not a gift. You need to politely tell both parties that this issue is not of your concern.

I don't quite follow how you came to be in the middle. You tell your in-laws, any arrangement they made between your brother and them is not your business. Tell them to do whatever they feel necessary to collect.

They should not be bringing you into the middle of it, but since they did, you could tell your brother that the polite thing for him to do would be to pay back his loan. He was loaned the money when he was in need of it, and now he should repay because your in-laws are now in need of their money.
Let your in-laws know that you spoke to your brother, but that's all you can do as you don't want to be in the middle. This way no one gets upset with you.
Kae

This is none of your business since they did this without you. Why take sides when its of no concern to you?

Yes I agree and with families you do get dragged into confrontation when it didn't even involve you which is unfair however the best thing is to stand up for yourself and say "please do not include me". The other thing what would really annoy me is that your relatives gave your brother money to help him out which sounds like quiet a while ago so why has he not paid it back? I can understand if there is some heat between your relatives and your brother now.