So it seems like when the script is generated, for some reason it does not capture the custom path location of Docker. In my case, I am not using appdata but instead using Docker.
After making manual changes to the script, it ran perfectly fine and added the VM.
There maybe a bug with how the script is generated and it not capturing the changes from the Docker template.
Another thing I noted is that it has to be "system" and not "System" for the custom_ovmf folder location else the VM won't start. The directory location in UnRaid is case sensitive.
I am not sure why the default path would be an issue but check the script and make sure the paths make sense.