We have two polycom phones configured with BLF of fifo-orbit extension number as address. 

When either of the phone re-register or re-subscribe, freeswitch generates notify to all the subscribed phones.

For example we have FIFO orbit extension as 5900. Phone A and B have BLF with address "queue+5900". When phone B sends subscribe to Freeswitch, it responds with 202 followed by notify but also sends notify to phone A.

Is it functionality of Freeswitch or some sort of bug. ?

As if there are many FIFO addresses configured for a large system with such multiple polycom phones, there will be flooding of notify, at cost of resource utilization of server.