Hi Sujiharan,
Can you set "Confidential" permission on OWA?
What’s your account type? Exchange online?
Does this issue happen to all users in your environment?
What’s the license information of Office 2016? Would you mind providing following screenshot for further research?

Rights management templates requires specific Outlook license such as Office 365 Proplus or Office 2016 Professional.
Please install available updates for Office 2016 to see if there are any improvements.
If none of these is your case, please
create a new profile to test the results.
Any updates, please feel free to post back.
Regards,
Perry
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