When you delete a module or Java action, the corresponding file(s) on disk are automatically deleted as well. This has been the case since version 3.0.0 of Mendix, in which Subversion-based version control was introduced.
If you are getting conflicts on disk when updating after someone deleted a module, this is most likely because you changed something in that module's Java actions. It is not possible to merge a change with a deleted file, so this will result in a conflict on disk.
Your best bet to avoid conflicts like these is therefore to have clear communication within your team when someone is about to delete a module, so that everyone knows to stay out of that area until the deletion has been committed and everyone can update.