cisco – Proxy arp not working on the nat outside interface (participating in a VRF)

My Router is not making the acting as a Proxy for the ARP requests for the NATted IP’s on the NAT oustide intterface.
Here’s the interface config :

ISR#sh run int fa0/0.101
Building configuration...

Current configuration : 169 bytes
interface FastEthernet0/0.101
 encapsulation dot1Q 101
 ip vrf forwarding Hydrol
 ip address
 ip nat outside
 ip virtual-reassembly

Interface FastEthernet0/0 is connected to another router which is the gateway for Vlan101 and has the IP:

ISR#sh run int vlan444
Building configuration...

Current configuration : 156 bytes
interface Vlan444
 ip vrf receive Hydrol
 ip address
 ip nat inside
 ip virtual-reassembly
 ip policy route-map VRF_TO_GLOBAL

Router is doing following NAT: ip nat inside source static

Routing is setup fine, and should be able to ping
ICMP Packet reaches till the gateway – but when the gateway tries to ARP for , the NAT router does not respond to the ARP request.
I’ve tried manually entering ip-proxy arp on the interface, but it has not effect because it is a default command.

When i manually enter a static ARP entry for on the gateway device – pointing to the NAT outside interface MAC address- everything works as expected.

I’ve tried multiple router series (3945,4500,IR) to do the NAT function with the similar config/setup – and i saw this issue on all series
So i’m sure it’s a config issue – not the device issue.

Is there something more to be done when the NAT outside interface is in a VRF – to make the proxy-arp work

Please help !

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