User cannot be found. at Microsoft.SharePoint.SPUserCollection.get_item(String loginName)

Recently during SharePoint upgrade to SP 2010 we have removed the groups (SharePoint groups and AD groups) in SharePoint, but still the K2 Blackpearl Workflows work with SP 2007 only. So the point of removing the groups was to restrict the users to access other sites with in the site collection and allow access to only specific workflows. so we have added the required access to the users for that site. But when workflows were submitted and while adding the data to the SharePoint list items the workflows got into error state with the message “User cannot be found. at Microsoft.SharePoint.SPUserCollection.get_item(String loginName)”.

Here is the screenshot of those errors:
Actually this workflow will create a list item in the SharePoint List which has some columns with the type of People or Group. So while filling the data into these columns with login names the error is thrown by the workflow. After a call with K2 team we have found that if we add these users for any SharePoint group in that site collection it will work. And we could repair all the errors by adding the users to a group with ‘Contribute without delete’ access. I think it may also work with other permissions levels like read-only.
There may be other causes for this error, but this fixed our workflow errors.
So the bottom line is all the users need to belong to atleast a SharePoint group to be accessed by Blackpearl workflow to fill the People or Group type columns in SharePoint list.