Hi Neetika,
Since you're running the application without a license, please also check the existing user sessions in the database.
You can open the database and check the System.Session entity/table. The unlicensed version has a limit of 6 active sessions. If the maximum number of sessions has already been reached, new users won't be able to log in and you may get the "The current license does not allow more users to sign in" message.
For a test environment, you can remove the existing/stale sessions from the Session table and then logging in again.
Also make sure you don't have multiple active sessions consuming the available limit.
Kindly mark this as the accepted answer if it helps.