The ability checks to see if Deadly Grub had no time counters on it at the time it was put into a graveyard from the battlefield. This doesn't necessarily mean it must have been sacrificed due to vanishing; it could have been put into the graveyard some other way (say, while the sacrifice ability of vanishing is on the stack).
Vanishing 3 (This creature enters with three time counters on it. At the beginning of your upkeep, remove a time counter from it. When the last is removed, sacrifice it.)
When this creature dies, if it had no time counters on it, create a 6/1 green Insect creature token with shroud. (It can't be the target of spells or abilities.)
