Try to do the following:
1. Remove the ChildrenAsTrigger="false" in your UpdatePanel.
2. Remove the <trigger> declaration.
3. Remove the UpdatePanel1.Update() method.
The basic idea is to just wrap your GridView and Modal declaration inside UpdatePanel control. For example:
<asp:Button ID="hiddenButton" runat="server" Text="" style="display:none;" />
<ajaxToolkit:ModalPopupExtender ID="ModalPopupExtender1" runat="server" Enabled="True" TargetControlID="hiddenButton" PopupControlID="upModal" BehaviorID="modalbehavior" BackgroundCssClass="modalBackground" OnCancelScript="cancelClick();" CancelControlID="closePopup">
</ajaxToolkit:ModalPopupExtender>
<asp:UpdatePanel runat="server" ID="upModal" UpdateMode="Conditional">
<ContentTemplate>
<asp:Panel id="pnlPopup" runat="server" class="ModalPanel" >
<table cellpadding="5" cellspacing="5" class="topBanner" style="width:100%;">
<tr>
<td width="50">
<asp:LinkButton ID="closePopup" runat="server" onclick="LinkButton1_Click" CssClass="ClosePopupCls">Close
[x]</asp:LinkButton>
</td>
<td align="center">
<asp:Label ID="lbl" runat="server" Text="Status"></asp:Label>
</td>
<td width="25">
</td>
</tr>
<tr>
<td colspan="3">
<asp:GridView ID="gvRecords" runat="server" AllowPaging="True"
BackColor="White" EmptyDataText="No Record Found"
EnableSortingAndPagingCallbacks="True" ForeColor="GrayText" Height="600"
onpageindexchanging="gvRecords_PageIndexChanging" Width="800">
</asp:GridView>
</td>
</tr>
</table>
</asp:Panel>
</ContentTemplate>
</asp:UpdatePanel>
Then to open the GridView, you could do something like this (Note that this is in C#):
protected void btnShowGridView_Click(object sender, EventArgs e)
{
ModalPopupExtender1.Show();
BindData();
}
Your PageIndexChanging event would be like this:
protected void gvRecords_PageIndexChanging(object sender, GridViewPageEventArgs e)
{
gvRecords.PageIndex = e.NewPageIndex;
BindData();
}