do isolated blocks create forks in block chain? (with forks I mean branches that are no longer valid) If yes then how does the node redeem itself?
If a block is mined on top of block A (let's call it block C), when Node B hears about block C, it will change its blockchain state to have block C as its tip and block B will become orphaned. This is because block C's chain has more work than block B's chain.

Seeing a double spend in blocks as you describe it does not make a block invalid. If I see a conflicting transaction in block A and block B, that conflict does not make one of those blocks invalid to me.