Gpg does not ask for password

Run gpg-agent or a similar program. Set up gpg to look for a running agent, as explained in the documentation. Enter the passphrase in the agent once and for all (for this session).

Note that ls | xargs -n 1 gpg only works if your file names do not contain any special characters. Generally speaking, don't parse the output of ls, and xargs is pointless when you want to run the program once per file. Do this instead:

for x in *.gpg; do gpg "$x"; done

Largely used GPF codes are of three types :

1. 0 is success (all other values indicate a failure).
2. 2 is usually used for unxpected errors.
3. 1 for things like a BAD signature.

The proper way to identify an error is by interpreting the output of --status-fd.

Now for the particular Question that you are using, there might be two reasons :

1. GPG is asking whether you want to continue on with the encryption using an unsigned key. Since no user can input Y it produces an error.

To fix this provide the following switches :

    --yes and --always-trust

2. It may also be a permission problem. gpg is trying to access a directory that it can't have access to, so it fails with a fatal error. (error code 2)

You can fix that by specifying a homedir directive with a directory writable by gpg. Like this:

   $cmd = "/usr/bin/gpg -a --recipient $to -e -o $outfile $infile --homedir /path/to/dir";

Information from man gpg:

   --homedir directory
   Set the name of the home directory to directory

    If this option is not used it defaults to "~/.gnupg". It does not make sense to    use     this in a options file. This also overrides the environment variable $GNUPGHOME.

You can also use this link to know more about this one.