First, council did not sign off on the plans, the chief building official did. Under Ontario's Building Code Act, chief building officials have all the regulatory authority granted to them on code interpretation, approving permits/plans, and have a responsibility to act in a manner that is free from undue influence (from council and/or senior municipal management). Council typically only gets involved in developments from the planning/development side of things. They should never be involved from a code side.
It would be unusual to have drywall required in a barn. I would ask the inspector to provide the code section stating it is required. Generally, the code asks for an assembly to have a performance (like a 1 hour fire resistance rating). It is up to the designer how they approach the issue, they could use a fire rated drywall on a stud wall, or use concrete blocks. As long as the construction hits the required fire resistance rating, the assembly is acceptable.