Is there any way TN can be configured to send an email notification automatically if any Converastion errors out (reasons like timeout, service invoked failed before sending an alert) ?
Yes you can do this. You will have to write a small service which takes as input cmerror record, which in structure corresponds to lastError structure. In the Business Model, itself create a step called error and associate the error service with it. In the system configuration of the model associate the error step. Then you should be able to receive emails when conversation fails.