Kirthan5:
I presume you are still out of Status? I would recommend you apply outland and leave Canada before CIC send you a letter of removal or deportation which is likely as soon as they receive your PR application Inland or Outland..If you leave of your own accord then you are not inadmissible and can return to Canada after an absence of a month or so..sounds like a long time I know but if you look at the bigger picture its not that big a sacrifice if you keep in mind that you are applying to be here for the rest of your life..
If you do not leave and get a removal letter or deportation it will seriously harm you PR application..
As for Inland vs Outland...
Yes for Inland you can be out of status to apply BUT CIC can still remove you from Canada! It takes around 18 months from start to finish, there are 2 stages
...Stage 1 - about 6 months or so..Sponsor is approved then you can work in Canada..or not approved and you leave Canada
...Stage 2 - about 18 months or so to receive PR or get denied
You have NO right of appeal for inland applications and you are not able to leave Canada during the process if you really have to!
Outland
Again 2 stages..
...Stage 1 - about 45 days at the moment..Sponsor is approved and Applicants Application is sent to India
...Stage 2 - about 2 to 6 months...you get PR and able to work in Canada...or you get denied and you appeal...
With outland applications you HAVE right of appeal and could have PR going through New Delhi in the same amount of time it takes for your sponsor to be approved on an Inland application..
As for Medicals and Police clearances...YES get your Police Clearance from India..CIC do their own checks in Canada so no need for a police certificate from Canada..Also do your Medical before you apply! It will save you a lot of time..
Its is preference but I would strongly advise you apply outland..especially as you have a child together..
Good Luck