As a workaround, I did "sudo touch /etc/init.d/ondemand && sudo dpkg
--configure -a" which allowed the upgrade process to continue.

-- 
package initscripts 2.87dsf-4ubuntu12 failed to install/upgrade: update-rc.d: 
/etc/init.d/ondemand: file does not exist
https://bugs.launchpad.net/bugs/485515
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