Hi Arun Etty, I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this!
Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept" the answer. Accepted answers show up at the top, resulting in improved discoverability for others.
Issue: Customer unable to connect to the SFTP service on Azure Storage. They were encountering an authentication error message: “Remote side sent disconnect message type 11(byapplication). Authentication failed.”
Root Cause: The root cause of the issue was the incorrect format of the username used for authentication. Customer was using “storageaccountname.sftplocalusername” as the username.
Solution: The issue was resolved by using the correct format for the username, which is “storageaccountname.localsftpusername”. After correcting the username, the user was able to successfully authenticate and connect to the SFTP service.