Thanks a lot for the reply. I have solved it now. When the 34 kernel booted up, it detected and initilaised the 16550 UART (which has a 1 byte FIFO) and not the 16550A UART (which has a 16 byte FIFO). So when frames were sent to ttyS1, 16550 UART was being used and not the 16550A UART.
This made things slower and also resulted in loss of bytes. Now I have made sure that 16550A is detected and initialised. So its all working now. :-)