Hello Kiran,
if you have a L2 LAN link I think there is no feature available to you for performing encryption in IOS.
two options:
- to find and deploy external boxes that do the encryption/decryption
- move back to a L3 link and combine L2TPv3 + IPSec
for L2TPv3 see
http://www.cisco.com/en/US/docs/ios/12_3t/12_3t2/feature/guide/gtl2tpv3.html
you can then configure IPSec to encrypt the IP packets of the L2TPv3 tunnel.
this is possible if you have ISR routers like C2811 or better.
Hope to help
Giuseppe