Zeeshan Khan, thank you for posting this question on Microsoft Q&A.
The primary issue that I see in the screenshots shared is that the template has been defined as an HTML mail body, but this is being attempted to be used as a "subject" of email. It should instead be put under the "message" textbox and "subject" should be something smaller. Also, I'm not sure of the restriction against the naming of the template, but I would suggest avoiding the blank space in the template name. Therefore, the name could be something like "Email.Template"
I would suggest reviewing the customize notification docs here from Grafana to understand this better from Grafana:
Furthermore, you could check with the Grafana Community here and post your question there so that Grafana experts can help you. Azure Managed Grafana is built on top of the Grafana Enterprise and almost all the resources available under Grafana also apply here.
Hope this helps.
If the answer did not help, please add more context/follow-up question for it, and we will help you out. Else, if the answer helped, please click Accept answer so that it can help others in the community looking for help on similar topics.