FULL PRODUCT VERSION :
C:\>java -version
java version "1.8.0_31"
Java(TM) SE Runtime Environment (build 1.8.0_31-b13)
Java HotSpot(TM) 64-Bit Server VM (build 25.31-b07, mixed mode)

ADDITIONAL OS VERSION INFORMATION :
Windows 7 Enterprise
Microsoft Windows [Version 6.1.7601]
64 bit System


A DESCRIPTION OF THE PROBLEM :
The steps to recreate this issue is as mentioned below.
1> Install Java 7 on windows 7 system
2> Upgrade to Java 8
3> Open CLI and navigate to the C;/Windows/System32 folder
4> Run the Java command
Result : The following error message will appear.
C:\Windows\System32>java
Error: Registry key 'Software\JavaSoft\Java Runtime Environment'\CurrentVersion'

has value '1.8', but '1.7' is required.
Error: could not find java.dll
Error: Could not find Java SE Runtime Environment.


Observation : Made the following observation.
1> The Java Registry entry has the version as Java 8
2> The C;/Windows/System32 folder contains the Java.exe which points to Java 7 version.
3> The folder C;/Program Files/Java folder contains the packages for both Java 7 and 8 jre and Jdk.
4> The Java Home and Path points to Java 8 Software.


REGRESSION. Last worked in version 8u31

STEPS TO FOLLOW TO REPRODUCE THE PROBLEM :
The steps to recreate this issue is as mentioned below.
1> Install Java 7 on windows 7 system
2> Upgrade to Java 8
3> Open CLI and navigate to the C;/Windows/System32 folder
4> Run the Java command
Result : The following error message will appear.

C:\Windows\System32>java
Error: Registry key 'Software\JavaSoft\Java Runtime Environment'\CurrentVersion'

has value '1.8', but '1.7' is required.
Error: could not find java.dll
Error: Could not find Java SE Runtime Environment.


EXPECTED VERSUS ACTUAL BEHAVIOR :
EXPECTED -
c:\Windows\System32>java
Usage: java [-options] class [args...]
           (to execute a class)
   or java [-options] -jar jarfile [args...]
           (to execute a jar file)
where options include:
    -d32 use a 32-bit data model if available
    -d64 use a 64-bit data model if available
    -server to select the "server" VM
                  The default VM is server.

    -cp <class search path of directories and zip/jar files>
    -classpath <class search path of directories and zip/jar files>
                  A ; separated list of directories, JAR archives,
                  and ZIP archives to search for class files.
    -D<name>=<value>
                  set a system property
    -verbose:[class|gc|jni]
                  enable verbose output
    -version print product version and exit
    -version:<value>
                  require the specified version to run
    -showversion print product version and continue
    -jre-restrict-search | -no-jre-restrict-search
                  include/exclude user private JREs in the version search
    -? -help print this help message
    -X print help on non-standard options
    -ea[:<packagename>...|:<classname>]
    -enableassertions[:<packagename>...|:<classname>]
                  enable assertions with specified granularity
    -da[:<packagename>...|:<classname>]
    -disableassertions[:<packagename>...|:<classname>]
                  disable assertions with specified granularity
    -esa | -enablesystemassertions
                  enable system assertions
    -dsa | -disablesystemassertions
                  disable system assertions
    -agentlib:<libname>[=<options>]
                  load native agent library <libname>, e.g. -agentlib:hprof
                  see also, -agentlib:jdwp=help and -agentlib:hprof=help
    -agentpath:<pathname>[=<options>]
                  load native agent library by full pathname
    -javaagent:<jarpath>[=<options>]
                  load Java programming language agent, see java.lang.instrument

    -splash:<imagepath>
                  show splash screen with specified image
See http://www.oracle.com/technetwork/java/javase/documentation/index.html for m
ore details.
ACTUAL -
C:\Windows\System32>java
Error: Registry key 'Software\JavaSoft\Java Runtime Environment'\CurrentVersion'

has value '1.8', but '1.7' is required.
Error: could not find java.dll
Error: Could not find Java SE Runtime Environment.


ERROR MESSAGES/STACK TRACES THAT OCCUR :
C:\Windows\System32>java
Error: Registry key 'Software\JavaSoft\Java Runtime Environment'\CurrentVersion'

has value '1.8', but '1.7' is required.
Error: could not find java.dll
Error: Could not find Java SE Runtime Environment.


REPRODUCIBILITY :
This bug can be reproduced always.

CUSTOMER SUBMITTED WORKAROUND :
The workaround for this issue is to uninstall all the previous installation of java software and then install java 8.