Saileshz,
That's exactly what I thought: A 50 years old microphone has less issues than this, but the microphone is fine!
I would have given you the solution but my posts were automatically removed as soon as I started giving others the link to mine, so here it goes: I found exactly that, and at first I thought the phone was stupid by using the motion sensor somehow, and yet not using it to switch to speaker mode when upside down, or when the proximity sensor switches the screen back on - which means you are away from the phone; away enough to turn the noise reduction off, which IS what is bothering you.
You'll see: you are right handed. If you switched hands, you'll see the phone fails when you turn your head left, not right. And the position relative to the floor is not the issue, the problem is the wall, the pillow, the chair, or whatever is behind you, makes your voice to bounce on theim and enter through the -very sensible- back microphone.
The back microphone is the one used to pick up noise, and "noise" is everything that enters through that microphone, because usually the voice enters through the front mic mostly.
So your iPhone is considering your voice as "noise", and cancelling it out. The problem is since the noise reduction feature requires more info than that to work properly -position of sound sources, objects around and their position or sound tight earbuds with embedded microphones in them, etc. - and it was announced as a big deal… the feature is not being kept OFF by default, as I think it should be: This is not a feature, but a pain in the ax, that annoys you more often than the times you acctually need it.
In order to fix it, you just go to accessibility and turn on the hearing aid. That will turn off the noise cancelling feature, to pick up more sounds - or in other words, for stop filtering the sound picked up by the great microphone.
I'd say keep the phone. The blame is on the marketing team, for blowing features our of proportion, not on the unit. Any other phone has mores issues than this. Others wouldn't replace the phone or give you the support Apple does.
good luck.