This is a physical server.
I have tried this KB http://support.microsoft.com/kb/2009272 to fix permission issue on Winsxs temp & filemaps folders but still no go.
restarted cryptographic services, several server reboots also.
then i found a hotfix http://support.microsoft.com/kb/2182466 from Micrsoft for same issue and tried that too but the hotfix is not applicable to my servers as the servers are patched upto date.
wbengine.exe file version hosted on my server is 6.1.7601.17514 which is latest than the one in hotfix kb listed.
when i run "vssadmin list writers" - system writer is not showing and is missing.
C:\Windows\system32>vssadmin list writers
vssadmin 1.1 - Volume Shadow Copy Service administrative command-line tool
(C) Copyright 2001-2005 Microsoft Corp.
Writer name: 'Task Scheduler Writer'
Writer Id: {d61d61c8-d73a-4eee-8cdd-f6f9786b7124}
Writer Instance Id: {1bddd48e-5052-49db-9b07-b96f96727e6b}
State: [1] Stable
Last error: No error
Writer name: 'VSS Metadata Store Writer'
Writer Id: {75dfb225-e2e4-4d39-9ac9-ffaff65ddf06}
Writer Instance Id: {088e7a7d-09a8-4cc6-a609-ad90e75ddc93}
State: [1] Stable
Last error: No error
Writer name: 'Performance Counters Writer'
Writer Id: {0bada1de-01a9-4625-8278-69e735f39dd2}
Writer Instance Id: {f0086dda-9efc-47c5-8eb6-a944c3d09381}
State: [1] Stable
Last error: No error
Writer name: 'Dhcp Jet Writer'
Writer Id: {be9ac81e-3619-421f-920f-4c6fea9e93ad}
Writer Instance Id: {4ca26252-80aa-474d-9a11-c23308717f38}
State: [1] Stable
Last error: No error
Writer name: 'ASR Writer'
Writer Id: {be000cbe-11fe-4426-9c58-531aa6355fc4}
Writer Instance Id: {c08e323c-4591-426f-9bd6-f3555460fe42}
State: [1] Stable
Last error: No error
Writer name: 'Shadow Copy Optimization Writer'
Writer Id: {4dc3bdd4-ab48-4d07-adb0-3bee2926fd7f}
Writer Instance Id: {4502c2d3-f5bb-4658-b422-f2549b7c48e4}
State: [1] Stable
Last error: No error
Writer name: 'Registry Writer'
Writer Id: {afbab4a2-367d-4d15-a586-71dbb18f8485}
Writer Instance Id: {b73c8c5a-a53e-40c7-8301-3e8b48ef1e3d}
State: [1] Stable
Last error: No error
Writer name: 'BITS Writer'
Writer Id: {4969d978-be47-48b0-b100-f328f07ac1e0}
Writer Instance Id: {c45879d1-ac05-4197-97e2-aebcd6ec7b35}
State: [1] Stable
Last error: No error
Writer name: 'COM+ REGDB Writer'
Writer Id: {542da469-d3e1-473c-9f4f-7847f01fc64f}
Writer Instance Id: {9c102277-7606-40ef-820b-f4e47b8ae868}
State: [1] Stable
Last error: No error
Writer name: 'NTDS'
Writer Id: {b2014c9e-8711-4c5c-a5a9-3cf384484757}
Writer Instance Id: {c814daf8-5863-4b33-bd7c-75040fe69de5}
State: [1] Stable
Last error: No error
Writer name: 'DFS Replication service writer'
Writer Id: {2707761b-2324-473d-88eb-eb007a359533}
Writer Instance Id: {a99c673a-66da-4472-8254-0edd872b1594}
State: [1] Stable
Last error: No error
Writer name: 'WMI Writer'
Writer Id: {a6ad56c2-b509-4e6c-bb19-49d8f43532f0}
Writer Instance Id: {2fcc7a18-9a94-4f70-9fec-b347591c6f7d}
State: [1] Stable
Last error: No error
verified this reference article too but no go.
RESOLVED - Backup failing on Server 2008 R2 - system writer missing
http://social.technet.microsoft.com/Forums/en-US/windowsbackup/thread/764791ff-ecb5-4716-9f1c-9e22852e0f6b