Setting

gconf key /desktop/gnome/lockdown/disable_lock_screen=true

along with "password not asked on login" in System>Users and Groups and
disabling "lock screen when screensaver is active" in Screensaver solved
the problem.

But setting the gconf key to true completely disables the feature of
lock screen.

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Screen locked after hibernate
https://bugs.launchpad.net/bugs/666746
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