As a sword cultivator, yes, he wanted to fight back, and yes, he knew what damage he would potentially suffer from handing his sword over, though he had underestimated the extent, he knew he'd pay a price for it, but despite knowing all this, he still chose not to fight back.
The reason for that was he felt that maybe he would be able to recover, maybe he would be able to use whatever resources the sect had to heal the damage that would come from having his connection with his sword severed.
If he fought, his death was all but guaranteed, but concession left him a path to life and as long as he lived, there would always be a chance for him to regain all he had lost. He knew he was just rationalizing his cowardice at the time, but he went with it. He wasn't ready to die, not when he was just inches away from taking one of the greatest strides in his life by reaching the palace realm.