I was able to successfully do chroot. Below is what I did:
chroot requires not only the init script or /bin/sh with execute permission, but most of the file system folders like bin. etc. var. etc. for creating a new root.
Hence, I gave below in system/core/include/private/android_filesystem_config.h
{ 00755, AID_ROOT, AID_ROOT, "system/glibc/" },
{ 00755, AID_ROOT, AID_ROOT, "system/glibc/*" },
Because when I copy the entire folder during AOSP build, by default the permission for all the files and folders in copied folder is 644 and hence the necessary folders required for chroot do not have execute permission.
Also, if any of the folder within the copied needs additional permission, then we can specify the same below above code.
I really loved the way android gives the permissions to filesystem. It is extremely configurable.
I hope this helps somebody else as well.