Thanks for posting your question in the Microsoft Q&A forum.
Based on your description, I have a few questions that are not clear to me yet and need your confirmation:
- Can you describe your current mailbox environment in detail? Is your exchange 2016 built on an Azure VM?
- What exactly is your Azure VM app?
- If your environment is hybrid, you can send emails from On-prem or Online. Can you explain in detail what "Sending email from Azure VM app using on-prem SMTP server" means?
Your answer is very helpful for us to solve your problem. We hope for your support and understanding.