Yes. You can refer to a third person as plural to denote respect/be formal. For instance "बेन जी बहुत अच्छे इंसान हैं ।" Is "Mr. Ben is a very good person".
I don't know if I have understood your other question but if you are saying that the sentence is not referring to two grandfather's, then you are right. The plural is to give respect to the single (paternal) grandfather not because there are multiple grandfathers. The maternal grandfather would be called नाना not दादा.
I think benros1 is saying that since one person (in a traditional family) can only have one maternal grandfather and one paternal grandfather... then there is never a reason to say "grandfathers." What benros1 is referring to as a "true plural" would be describing multiple grandfathers.
Ugh, i tried to use emojis to explain and Duo cut off the rest of my comment.
One can imagine having to discuss a group of grandfathers, not all belonging to the same person. My guess is that they would be referred to as the plural of "dada"... And that one would refer to ones own pair of grandfathers as "dada-nana" or "dada or nana"