Monterey 12.3.1 boot failure - "Operation not permitted"

I've been experiencing problems trying to update to Monterey 12.3.1. Typically, the failure manifests itself as a kernel panic while booting either as part of the installation or after booting the new system a few times.

The target of the installation is an external SSD to allow switching back to 12.2.1 (installed on the internal SSD). There is evidence that the Monterey 12.3.1 SSV system seal gets broken when 12.2.1 is booted.

I have captured the verbose screen logs during the 12.3 boot process near the time of the failure (see below). launchd starts the fsck boot task which fails with Operation not permitted which, in turn, causes a kernel panic boot loop.

I would appreciate it if someone could shed some light on the possible reasons for this type of failure.

- Pie Lover