Hi,
Thanks for your response. I was able to resolve the issue, by setting the environment parameters correctly.
I am using:
DIAB_CATALOG = C:\Freescale\CW MCU v11.1
DIAB_TOOL = %DIAB_CATALOG%
I hope this helps someone else who is facing similar issue. I lost the link to original thread which had the solution. It would be great if someone can add that in comments as well.