Thanks all for inputs
SOLVED !!!
1) The fan is fine in my system. The fan does not run and CPU remains
cool when used with the SSD based USB device but CPU was only heating
when using with USB-SD card based OS. So this is NOT a hardware issue
The problem is that mine is a hybrid nvidia-optimus (bumblebee).
Now, I had disabled nouveau (modprobe.d blacklisted) which caused (I
guess IMHO) the GPU to be switched off thus offloading all tasks to
the CPU.
The moment I loaded nouveau GPU got enabled and the good nice
neighbour to CPU started helping CPU.
Now my CPU is nicely running at 55-60C as expected. I can hear the
fans spinning down the instant nouveau is loaded !!!