Kiran,

There is nothing wrong with using two wires for RS485 as long as both systems have their 0V within the common mode range for the RS485 transcievers. You can have problems if the RS485 interface is isolated. This is why many systems also use the 0v conductor. As for shielding, this is a contentious topic. One compelling reason for connecting the shield at both ends is lightning protection. In the case of a lightning strike, the shield acts like a turn in a transformer. So where does the induced voltage go? It may flashover on the unconnected end. So, connecting the shield at both ends effectively creates a shorted turn, so the lightning energy gets conducted to ground.
RS485 is quite tolerant, so even a bad setup will most likely work without problems. However, the more robust we make it, the less problems we have with our customers.