Dear Vinai Prakash,
Good day and thank you for contacting the Microsoft Community. We appreciate your inquiry and are happy to assist.
Based on the image you provided, it appears that the 'Anyone with the link' sharing option is unavailable due to your organization's policies. Typically, this feature allows for external sharing with additional security measures, such as setting a password. You may want to consult your IT administrator to explore alternative sharing options permitted by your organization.
Regarding your question about password-protecting documents in SharePoint, we regret to inform you that SharePoint does not currently offer a built-in feature to apply password protection directly to documents stored within its environment. SharePoint does not support prompting for a password when opening a file unless the file itself is encrypted.
I can see you want to password-protect a docx file, so as a workaround, you can apply password protection within the document itself (e.g., using Microsoft Word or Excel) before uploading it to SharePoint. This ensures that only users with the password can open the file, even if they have access to the SharePoint location.
To Password-Protect the Document in Microsoft Office (Word, Excel, etc.)
Open the document in Word, Excel, or PowerPoint.
Go to File → Info → Protect Document (or Workbook/Presentation).
Choose Encrypt with Password.
Enter and confirm your password.
Save the document.
Upload the password-protected file to SharePoint.
Friendly remind, password-protected files cannot be previewed in the browser; users must download and open them in the desktop app.
Should you have any further questions or need help with on this topic, please don’t hesitate to reach out.
Best regards,
Doris V - MSFT | Microsoft Community Support Specialist