Below is the solution in case if anyone having the same issue:


ModalAccountComponent:

<aura:component implements="flexipage:availableForAllPageTypes,flexipage:availableForRecordHome,force:hasRecordId,force:lightningQuickAction" access="global" >
    <aura:attribute name="strRecId" type="String" />
    <lightning:overlayLibrary aura:id="overlayLibDemo"/>
    <aura:handler name="init" value="{!this}" action="{!c.doInit}"/>
</aura:component>

ModalAccountComponentController:

({
    doInit: function(component) {
        var strAccId = component.get("v.recordId");
        console.log('Account Id ====>'+strAccId);
        $A.createComponent("c:AccountEditComponent", 
                           {strRecordId : strAccId},
                           function(result, status) {
                               if (status === "SUCCESS") {
                                   component.find('overlayLibDemo').showCustomModal({
                                       header: "Account Edit Form",
                                       body: result, 
                                       showCloseButton: true,
                                       cssClass: "mymodal", 
                                   })
                               }                               
                           });
    }
})

AccountEditComponent:

<aura:component implements="flexipage:availableForAllPageTypes,flexipage:availableForRecordHome,force:hasRecordId,force:lightningQuickAction" access="global" >
    <aura:attribute name="strRecordId" type="String" />
    <lightning:overlayLibrary aura:id="overlayLibDemo1"/>
    <lightning:notificationsLibrary aura:id="notifLib"/>
    <div class="slds-theme_default">
        <lightning:recordEditForm aura:id="editform"
                                  onsubmit="{!c.handleSubmit}"
                                  onsuccess="{!c.handleSuccess}"
                                  recordId="{!v.strRecordId}"
                                  objectApiName="Account">
            <lightning:messages />

            <lightning:inputField fieldName="Name" aura:id="accName" />
            <lightning:inputField fieldName="Industry" />
            <lightning:inputField fieldName="Phone" />          
            <lightning:inputField fieldName="Type" />
            <div class="slds-m-top_medium">
                <lightning:button variant="brand" type="submit" name="save" label="Save" />
            </div>
        </lightning:recordEditForm>
    </div>
</aura:component>

AccountEditComponentController:

({
    handleSubmit : function(component, event, helper) {
        component.find('editform').submit();
    },

    handleSuccess : function(component, event, helper) {
        var strAccName = component.find("accName").get("v.value");
        component.find('notifLib').showToast({
            "variant": "success",
            "title": strAccName,
            "message": "Account Updated Successfully!!"
        });
        component.find("overlayLibDemo1").notifyClose();
    },
})

ModalAccountComponent should be added on Account detail page by going to edit page, scroll down to custom component section and from there drag and drop this component on the page anywhere. This component won't be visible on the detail page but when the detail page is opened, it will be opened as a pop up.