Thank you for all your advice. Yes she is fine interacting with people when sat on our knees. The grandparents are ok they just don't want to upset her, but I was told to keep trying her with different people holding her, but am not sure what's best!
Well, the grandparents are just going to have to get over themselves, and remember that they are the grown-ups! This is a perfectly normal part of every child's development and she will get over it - although there's likely to be another super-clingy phase in early toddlerhood. Please don't put your baby in situations which stress her and make her unhappy, even if that situation is something as apparently harmless as being held by a loving grandparent. Would she interact happily with them if you were holding her and they sat next to you?
Am looking for some advice as our 20 week old will not be held by anyone else other than me or her dad. If she's been held by us or in her pushchair she smiles, laughs, chatters away, but if anyone takes her to have cuddles even if we are sat next to the person she cries. As you can imagine this isn't going down to well with the grandparents.