I think i have figured out the problem.
The project "Zip Partial DLL" has a prebuild-event command line as "..\..\PackResources.cmd".
After exploring the contents of PackResources.cmd i found that it uses the tool zipIt.exe to zip the resources and create the file "ZippedResources.zip".
But the path to tool zipIt.exe is "c:\dinoch\bin\zipIt.exe" which is not present on my PC. So the command file deletes the existing "ZippedResources.zip" but is not able to create it again and so we get a file not found exception
while building the project.
By changing the path of the tool zipIt.exe to its proper location i was finally able to build the solution.
Hope this helps anyone else facing the same problem.