Ok I have been able to figure out the problem .
It was a case of the the application user being added incorrectly on the server side . Specifically see below .
[userone@localhost bin]$ ./add-user.sh
What type of user do you wish to add?
a) Management User (mgmt-users.properties)
b) Application User (application-users.properties)
Enter the details of the new user to add.
Realm (ApplicationRealm) : ApplicationRealm ---->> Careful Here . You need to type this or leave it blank . I filled an incorrect value here and things went wrong from there .
Username : testuser
Password : testpassword
Re-enter Password : testpassword
What roles do you want this user to belong to? (Please enter a comma separated list, or leave blank for none) : testrole
About to add user 'testuser' for realm 'ApplicationRealm'
Is this correct yes/no? yes
Added user 'testuser' to file '/home/userone/jboss-as-7.1.0.Final/standalone/configuration/application-users.properties'
Added user 'testuser' to file '/home/userone/jboss-as-7.1.0.Final/domain/configuration/application-users.properties'
Added user 'testuser' with roles testrole to file '/home/userone/jboss-as-7.1.0.Final/standalone/configuration/application-roles.properties'
Added user 'testuser' with roles testrole to file '/home/userone/jboss-as-7.1.0.Final/domain/configuration/application-roles.properties'
I took me a long time to figure this out . Helpful link for the same :: http://middlewaremagic.com/jboss/?p=1466