Now I am trying to read from my own C drive, so why am I getting this error?
Because applets are restricted in what thy can do, in particular for things like reading files from and writing files to the client's hard drive.

I thought you said you were loading the file from the server?

If you really must have access to the clients drive you can sign your applet to create a "trusted" applet and then it's up to the user if he/she is willing to allow your applet to access their drive.