Or maybe it's not... but the code is working fine now and I've absolutely no idea how. Here's the story: When I posted this thread I was stil working on the problem but then I had to go somewhere. Someone tampered with my stufs in my absence and when I returned I noticed that one of the supply wires has been pulled out of the board. I soldered it again and increased two fold the delay as per discussion with Mehdi. It worked. I was about to declare the "delay" as the cause of the problem when I realized that I am not accessing the EEPROM again for atleast 1 sec. Infact the program works just fine without any delay. I compared the working program with the one posted here and it matches completely. Now I am wondering if there ever was any problem!

Michael, I unfotunately don't have an oscilloscope at present. I'll only get one by next month. I tend to heavily depend on it too.

Erik, thank you for the links. I am very well aware of inbuilt I2C harwares, and as a matter of fact I am using PICs with this feature for two of my projects. But sometimes you just have to compromise for what so ever reason, but ofcourse, you know that too.

Russell, I tried to know the value that is being read, but it is difficult to do such things when you have only four free port lines, two LEDs and a simple multmeter. Otherwise I would have definately posted it here.

I am grateful to all you gentlemen for giving me your time. I'll let you know of any new development on the issue.

Regards.