verify first that the firewalls have connectivity to the DHCP server. Does firewall have a route to DHCP server, does DHCP server have a route to 192.168.10.0/24 network? Have you added a matching scope to the DHCP server? The netmask in scope must be such that it includes the NDIs so that this scope is selected when DHCP discovery comes in (src IP will be NDI).
If DHCP server is instead reachable over an IPsec VPN that is terminated on the firewall itself, then you would need special rules for that in the Firewall Template, above the automatic rules insert point (refer to McAfee KnowledgeBase - How to configure DHCP Relay over VPN for Next Generation Firewall).
The proxy ARP has no effect on acquiring a virtual IP, but generally you would want to configure it for connectivity reasons. Without it, nobody would answer to ARP requests when sending packets to the virtual IPs.
Thanks Lauri, I have configured the DHCP server as well as reviewed the firewall settings and it's working now.