Hello All,
We found the solution for this error.
Actually our client software was not updated properly. When we checked in Sm50 and picked up any work process trace it showed client software to be at 9.7 FP4 and DB server version to be at 9.7 FP9 ( which we still do not understand how FP9 was being shown as we have upgraded from FP4 to FP10 
) . Though with db2level command, it showed to be 9.7 FP10 at OS level.
Then we thoroughly studied the client upgrade script ( line by line what it was doing) and came to know that there was a file missing at a location.
Now we browsed through the download section in SAP SMP and found that SAP has started to deliver Client Software separately and there is also a Client folder in Actual FP SAR as well. Also the FP Note 1363169 does not specify about this.
The note mentions this :
4. Download the attachment db6_update_client.SAR to the subdirectory <temp>/CLIENT, and unpack it there using the program SAPCAR.
We had this(db6_update_client.SAR) from our previous updates and used the same and this is where we were mistaken.
Just an addition please run "db6level" to check client version on all the application server hosts, as <SID>adm, in addition to "db2level".
Usefull commands can be found here :
Initially SAP support told that it is a problem with DBACOCKPIT for DB2 9.7 FP10 to which we said to release a note to. Then again no response was from their side.
Thank you for all the help.
Regards,
Hrishav