Check for the existence of the file sshd_config (/etc/ssh/sshd_config).

Before editing the file check that path settings for sftp-server $ locate sftp-server /usr/libexec/openssh/sftp-server

Check for the existence of following line in sshd_config Subsystem sftp /usr/libexec/openssh/sftp-server

Incorrect path settings to sftp server causes the above message. Once the path is set correctly, you will no longer see that error message

$ /etc/init.d/sshd restart to restart the ssh services.

Other such error message related to the above scenario File transfer server could not be started or it exited unexpectedly. Exit value 0 was returned.