To resolve this issue follow these steps.
1. Open the setup project and go to the launch conditions.
2. Check the properties of the .NET framework launch condition.
3. In the supported runtimes [1.1.4322] is already added by default. We need to add other versions of the supported framework using a semicolon delimited string.
4. Use 1.1.4322;2.0.50727 for installing the MSI file with .net framework 2.0 , similarly 3.5.21022 and 4.0.30128 for 3.5 and 4.0 version.
So now the MSI file will run , in higher versions of .net framework , even if originally built with .net framework 1.1