Ashutosh,
Thank you for your question regarding system policies and upgrading your AdminStudio 3.5 product to Value Pack 1.
I did a quick search across the InstallShield forums for the phrase "system administrator has set policies to prevent this installation" and found many different suggestions, one of which should be helpful in fixing this problem. Just press the Search button at the top of the page, then type in the phrase, and search across all the forums.
I hope this points you in the right direction, let us know if this is still causing any problems.