Resolution:
For Inbound services to process the messages sequentially, we must limit the total number of threads created by adapter to process message to '1'.
To do this, the field 'Number of Threads' in 'Adapter Services tab should be '0' and we must specify the threads under Multithreading tab at session level such that total for all sessions should be 1.
For outbound services, "Number of Threads to Process Siebel Events" parameter under Adapter Services tab should be set to '1'.

Basically sequential processing is possible only if adapter is single threaded.