Hi @kporter
More logs line in case they could lead to any clue 
In VM1:
Apr 08 2015 12:22:24 GMT: INFO (hb): (hb.c::1961) connecting to remote heartbeat service at <ip-vm2>
Similar line in VM2 as well.
I am also able to telnet each server from another on 3002 port.
Could it be because of the known AS issue mentioned here: Mesh heartbeat - "unable to parse heartbeat message" [Released] [Resolved] - #4 by oldforum ?
I am really sorry to bug you for such a small issue. But I am kind of stuck after having tried out many options and still not getting my head around this. In case you can make any other conclusions with the limited information you have on my scenario, kindly let me know. Thanks.