Hello,
The only instance of that read error is when you are trying to remove a protected directory and the file doesn't exist... anyway, the file is located at:
/home/username/domains/.htpasswd/.protected.list
Note that both the .htpasswd directory and .protected.list files are hidden.
To create the file .protected.list file, you'd go:
User Panel -> Directory Password Protection -> Find a Directory to Password Protect -> click "protect" beside the Directory you want to protect -> enter the info.
That should create the file for you.. I'm not too sure why it got deleted. Also check permissions on the directories just in case.
John