The SPListItem being updated was not retrieved with all taxonomy fields
I was getting the above error while trying to assign the terms values to a custom meta data column(via programmatically as well as manually). Even after increasing the List View Lookup Threshold value above 8, still I was getting the same error.
Not sure about the root cause of the issue, however I could resolve the same by re creating the custom site columns and site content types once again. Thought of sharing this info, as this might help someone trouble shooting the issue.