OK.. it seems like I don't need jvmArgs line in the above xsltCleanup task, IF the following 2 variables are SET in ~/.bashrc. Having jvmArgs line in the task solved DEV local builds but it still didn't resolve the behavior when Jenkins build (CM Team) had LANG set to something different than UTF-8 (at Jenkins/System).
export LANG=en_US.UTF-8
export GRADLE_OPTS="-Dfile.encoding=UTF-8"
Making the above change in my ~/.bashrc and ~/.bash_profile (calling ~/.bashrc).. fully resolved the issue for local builds in Windows(Cygwin) and in a local Linux. Setting the above two variable/properties in Jenkins GLOBAL Settings config page, did the trick for Jenkins build as well. One can also set these at the job config level.
Arun